Digital marketing services come in many forms, but there are two that cause a bit of confusion: referral programs vs affiliate programs.
What’s the difference between a referral and an affiliate? Which one is better for your business? We compare the two types of programs to find out. You can also connect with a freelance digital marketing expert on Oziconnect to help you with the best marketing strategy suitable for your business.
Referral programs vs affiliate programs
Let’s start by explaining the basics of each type of marketing program:
A referral program offers existing customers and users an incentive each time they refer someone who makes a purchase. The incentives are often a one-time discount, gift card, or service upgrade. The key participant of a referral program is the customer (or referrer).
An affiliate program, on the other hand, compensates actual bloggers, influencers, brand ambassadors, and other partners (called affiliates) for any new customers they bring in. Affiliate program rewards are usually cash-based.
For example, popular affiliate incentives include a one-time payout for each sale, a percentage of the first sale, or a recurring percentage (if the product is a monthly subscription).
The key difference between affiliate programs vs referral programs is the affiliate partner does not have to be a customer. However, even if affiliates are not customers, they should have an audience that includes the company’s target market. Learn more about affiliate marketing programs.
Also read: The Best Follow-Up Email Strategies For Business with 7 Examples
What’s the difference between referral and affiliate marketing
To further understand the differences between affiliate programs vs referral programs, and help you decide what works best for your brand, here are some defining factors.
1. The individual referring new customers
From the start, the individuals invited to join an affiliate program vs referral program are vastly different. The following table explains the difference between the two:
Referral programs | Affiliate programs |
Referral programs typically target current happy customers, fans, or brand advocates.
A form of word-of-mouth marketing, referral programs give each customer a unique referral link and reward them for every successful referral. |
Affiliates can be anyone interested in generating income by promoting another business (some companies outsource this step to affiliate networks). Individuals sign up to join the affiliate program or are contacted directly by the business.
Once approved, affiliates get their link and include it on their own channels. |
2. The relationship with the potential customer
Another big difference between an affiliate program and a referral program is the type of relationship between the person who is referring (the affiliate or customer) and the person being referred to the business (the potential new customer).
Referral programs | Affiliate programs |
Referral marketing works best when there is an existing relationship between the customer and the referral.
Successful referrals are usually friends, family, or colleagues. The existing relationship and trust between parties are what leads to a successful referral. |
In affiliate marketing, there is no direct relationship between the two parties. The person who clicks on the affiliate link doesn’t need to personally know the affiliate, although there is usually some degree of trust.
For example, subscribers to a Youtube channel or podcast don’t know the host but trust their recommendations. |
3. How the program is shared
The strategies for sharing these two types of reward programs are slightly different. Referral programs usually take a more direct approach, whereas affiliate programs rely on people landing on an affiliate page.
Referral programs | Affiliate programs |
Referral programs have a more specific, intentional approach. Most messages are sent to friends and family through direct channels, such as email, text, or social media messages.
This personal customer engagement, in addition to the established relationship, usually results in a higher chance of the person making a purchase. |
Affiliate programs are more easily shared across general channels. It’s as simple as including a link on the affiliate marketer’s site, newsletter, or social media post.
Of course, people who land on the affiliate page or post might already be interested in the product or service. But choosing the right page and context will encourage people to trust and click on the affiliate link.
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What’s the difference between an affiliate link and a referral link?
Both affiliate links and referral links are used to track any new customer or sale that comes from a program participant. As soon as an affiliate or customer signs up for your program, they are given a unique link they can use to invite others to visit your website or the product page.
The difference between affiliate links and referral links is where they’re shared. An affiliate link is published to the public, usually through a website, blog post, or social media posts. A referral link is typically sent as a direct message from person to person (although providing message templates can make the sharing much easier).
4. The types of rewards
Rewards are the ultimate driving factor in both referral programs and affiliate programs. Even if someone really loves your business, an attractive incentive will keep them motivated to refer others.
Rewards can vary greatly across different affiliate referral programs. There are different types of rewards, including cash, discounts, upgrades, swag, etc. Plus, programs can choose between giving one-time rewards, recurring, or tiered rewards.
Referral programs | Affiliate programs |
Popular incentives for a referral program include discounts, store credit, coupons, cash back, or gift cards.
Rewards can also be given to only the existing customer (the one referring to others), the new customer (the referral), or both (a dual-sided incentive). |
Affiliate programs typically offer cash-based incentives, in the form of a flat fee or percentage of each sale.
It’s also common for affiliates to get a free product on top of their cash compensation, especially if they perform well or have been affiliated with the company for a while. |
5. The customer lifetime value (CLV)
Customer lifetime value (CLV) indicates what you can potentially earn from a customer over the period of their relationship with your business. Will the customer only make a one-time purchase, or will they become a long-time customer with regular orders?
This greatly depends on the product or service you are selling. Some products, like cars or larger equipment, are generally intended for a one-time purchase. (Of course, the company can also supplement this with other items and services.) Other products, such as consumables and subscription services, will naturally keep your customer base coming back.
Referral programs | Affiliate programs |
A referral program works well with a variety of products and services.
Since referral programs are based on loyal customers and trust, they work especially well for products with a higher CLV. |
An affiliate program usually works better for businesses with a lower CLV.
As these programs pay for every new customer, affiliates are more focused on quantity and scale. |
What are the similarities between affiliate programs vs referral programs
While affiliate programs and referral programs have their differences, they do share a few similarities. The biggest similarity is they both encourage others to promote a brand and typically offer an incentive for every sale.
Below are a few other ways affiliate programs and referral programs are alike.
1. They rely on social currency
Both programs are based on inviting others to become new customers. Whether that invite comes from an existing customer or an affiliate, it naturally involves a level of risk.
What happens if the referred customer doesn’t like the product or service? Or has a bad experience with the business?
If things don’t go as planned, there’s a certain amount of trust or social currency that’s lost from the referring party.
Referral programs | Affiliate programs |
Since referrals come from existing customers, there’s an implied guarantee the product or service is good. After all, they’ve already tried it themselves.
So when a customer refers to their family and friends, it’s assumed that the product is worth trying and will work for them, too. |
In affiliate marketing, the link is placed on a public platform, like a blog post, landing page, or an online video.
Even if there’s no direct communication, visitors decide to click on the link based on trust and the affiliate’s reputation. |
2. They’re both repeatable marketing strategies
Both affiliate programs and referral programs are intended to drive consistent growth. They rely on other parties to advocate their business, generate word of mouth, and help bring in new leads and sales.
Referral programs | Affiliate programs |
A referral program builds a long-term meaningful relationship with your customer, inviting them to share with their friends and rewarding them for their efforts.
Though referral programs may not see much traffic as affiliate programs, they do generate higher quality leads and higher conversion rates. |
Many affiliate programs include their links in engaging content, such as high-traffic blogs or posts on their social network.
Even if there’s no direct communication with potential customers, these affiliate links are easily clicked by anyone with an existing interest in your product or service. |
How to decide between referral vs affiliate programs
Now that you know the basics of referral programs vs affiliate programs, you’re ready to find the best one for your business.
To help with your decision, we break down which type of affiliate referral program to consider for every different industry. (As you can see in the table below, some businesses can see success with running both a referral program and an affiliate program!)
Business type | Referral program | Affiliate program |
Ecommerce/ Online store | Definitely | Good, if products have higher margins |
SaaS (B2C) | Great for showing customers appreciation with a reward | Possible, but since price points are generally lower, it might not attract many affiliates |
SaaS (B2B) | Yes, as long as you provide attractive incentives | Great for high-transaction sales with no salesperson. (It can be pricey to compensate both an affiliate and a salesperson.) |
Local services | Great for services with higher price points, recurring fees, or monthly payments | Difficult for offline businesses bound by specific locations or those with longer sales cycles |
Consulting or coaching services | Can be good, but a service that’s too niche will have a lower volume of potential referrals | Great, but the sales process can be tougher to track electronically |
Gyms | Great way to give credits or discounts to customers, and build loyalty | Can be difficult to target local leads through affiliate links (which are mostly online) |
Examples of affiliate referral programs
Now, let’s highlight the difference between real-life referral programs vs affiliate programs with some well-known examples of each:
Dropbox’s referral program
A perfect example of a referral program is the one offered by Dropbox. The company gives additional free space for every successful referral that comes from a current user.
This popular referral campaign played a huge role in ramping up Dropbox’s new user signups when it first launched back in 2008. Thanks to its easy sharing experience, the program permanently increased Dropbox’s signups by 60% (with over 2.8 million referrals within 18 months).
Plus, with an incentive of free space, the customers and referrals were more likely to use the product and immediately see its benefits.
Uber’s referral program
Another brand that’s mastered the art of referrals is Uber. Its notable referral program gave both the current user and the newly-referred user a free ride (a dual-sided reward).
Because of this generous offer, Uber’s referral program quickly became a success and helped the company rise to the top of the ride-sharing industry.
In fact, other similar services began running their own referral programs and also saw a large increase in their user base.
Amazon’s affiliate program
When it comes to affiliate marketing, Amazon is one of the largest brands that come to mind. You may have noticed a lot of bloggers or media channels recommend products with a direct link to Amazon.
These unique affiliate links allow Amazon to track where each sale comes from. When it gets a new sale from a particular affiliate link, the company automatically compensates the affiliate (called Amazon Associates) with a percentage of the sale.
Target’s affiliate program
Similar to Amazon Associates is the Target Affiliate Program. Target is another big business with a huge variety of products, which makes it easy for affiliates to link naturally to items within their content.
The challenge is Target has many physical locations. So if someone sees an item on an affiliate’s page, they might choose to just buy the item in the physical store, leaving the affiliate without any commission.
However, since Target does offer free and convenient shipping (above a certain amount), many customers will opt to make their purchase online and save themselves the effort.
Referral vs affiliate marketing: Which one is for you?
Referral programs and affiliate programs are both great ways to grow your customer base through an existing network. While they’re both based on word-of-mouth marketing, each specific type of program has the potential to help your business in different ways.
If you’re considering a referral program or an affiliate program (or both!), having the right software tool can help you get started.
Learn more about how our referral program software and affiliate marketing software builds your complete program in just a few steps and get others talking about your business in no time.
Credit: ReferralRock