Referral Program vs Affiliate Program: Find Out Which Is The Best Fit For Your Business
What are referral and affiliate programs? At first glance, these marketing strategies may look the same given that they strive for the same goal: enticing new customers and retaining them for a long time. Although the lines tend to be blurry, slight differences have a huge impact on how you will get your business up and running.
In this article, we will offer you an overview of both programs that will propel you out of this conundrum to find out which strategy works best for your business.
Referral vs. affiliate marketing in brief
Both strategies have a similar structure and goal – to bring customer revenue. However, the key difference between referral marketing vs. affiliate marketing is the target audience.
- Affiliate marketing incentives are aimed at businesses, service providers, and other third-party brands. The main idea is that those will promote your product or service among their audiences.
- Referral marketing incentives are aimed at current customers. The main idea is to encourage your customers to spread the word about your product or service among their friends and colleagues.
That’s in brief, but of course, there are other things that you should consider when choosing the best strategy for your business.
What is a referral program?
A referral program is a marketing strategy that stimulates existing customers to recommend your product or service to their network. This includes friends, colleagues, family, or contacts on your social media that might have expressed interest in using your product or service.
How does a referral program work?
Referrals are a powerful way to boost your sales and grow your business. The concept is pretty easy to grasp: Chances are you have a pool of satisfied and loyal customers who are already referring your products to their peers. A referral program offers them extra incentives to do so by rewarding them in various ways for their trust.
Advantages of a referral program
Wield the power of word of mouth
In this digital age, we are bombarded with promotional messages every day. Whether they try to get past our attention wall through digital platforms, social media, or email marketing, the good thing is that we can filter out a large part of this noise. Asking for feedback, opinions, and reviews is a deciding factor when making a product purchase.
This is where word of mouth comes into play. It is the most effective form of marketing to boost your business’s bottom line. When consumers share their experiences and speak positively about your products and services with friends or family, then your business unconsciously becomes more familiar, which helps increase sales. What’s more, word of mouth does not stop at a single person but triggers a domino effect: each person that continues the chain and spreads the word increases the chances you stumble upon a group of fans for your business.
Wins people’s trust
If you have a good mechanic you trust, you know exactly where you will go for car maintenance or repair and will not bother too much about the cost involved compared to other professionals in the field. You just leave the car there, knowing that this mechanic provides excellent services, is honest and transparent, and is reachable. Extending this case to other fields, just like travel accommodation, health and beauty services, and software tools, that trust is always comforting.
This distinct characteristic of referral marketing serves as a sort of proxy for product or service reliability. Unlike TV commercials or advertisements that pop up on your social media, recommendations from friends and family are the most valuable and credible form of marketing.
Referrals who convert into new customers tend to enjoy your services or products for longer and often end up becoming some of your most loyal advocates. The chances of retaining them for a long time increase with double-sided referral programs. Such types of programs reward both the referrer and the invitee.
Saves cost
The search for new customers is a recurring, tough challenge and also a costly affair – especially for small businesses. Unlike other paid marketing channels, referral marketing slashes marketing costs exponentially as it leverages an existing pool of high-quality customers who spread the word relatively quickly. By making the most of the relationships you have already built, you maintain autonomy from the competitive options of Google or Facebook advertising.
Importantly, referral programs offer the lower-cost alternative of targeting people who are likely to be interested in your product or service. Delighted customers who talk about your business to peers eliminate the costly and burdensome task of targeting customers by location, age, gender, interests, etc.
| Referral programs in a nutshell |
|---|
| Capitalizing on word-of-mouth marketing, businesses are more trustworthy. They are more likely to attract loyal customers as the latter tend to trust family and peers. |
| Satisfied customers are likely to make recurring purchases of a product or service, share valuable feedback, and refer the business to other customers. |
| Referral programs decrease the cost of acquiring new customers as they lean on existing customers. |
Examples of referral programs
Dropbox
Dropbox is arguably one of the most popular cases of referral marketing done right. Instead of rewarding their users with cash incentives, they offered free storage space. But that’s not all: the platform rewards both sides for completing the desired action. Both the referred and advocate will get 500 MB of bonus space.
Google rewards its business customers for bringing new people to Workspace, a chargeable service that secures documents and data. Depending on your plan, the advocate can earn between $8 and $23 per user.
NA-KD
NA-KD is an example of an online brand that brings fashion and accessories from around the world. Its referral program is double-sided, treating both sides to 20% off an order.
Why is a referral program important?
Referral programs are touted for their potential to make a noticeable impact on businesses. The return on investment they deliver has no rival. The following referral marketing statistics show how. The numbers are dazzling:
- 92% of consumers trust referrals or recommendations from friends and family
- During the first wave of the COVID-19 lockdown, referrals grew by 425%
- With a conversion rate of 3.74%, referral programs stand at the top of all marketing channels
- Customers referred from a friend are 4 times more likely to make a purchase
What is an affiliate program?
An affiliate program is a marketing strategy that rewards independent marketers with a commission that stems from specific recommendations of your products or services to an audience. Unlike in a referral program, where a person promotes your brand in his intimate circle, affiliate partners refer your business to a larger network they might have no close contact with.
How does an affiliate program work?
Affiliate programs offer a great way to increase your sales, reach new audiences, or drive significant traffic to your website. Affiliate partners seek to promote your product or service by placing links directing to your website on their social media profiles (Facebook, Twitter, Instagram), blogs, or on their own official company website that might promote similar products to yours. They try to find natural ways of adding links to the content of their post so that they sit seamlessly within the flow.
Advantages of an affiliate program
Handpicking a suitable partner
Setting up and running any marketing program, just like an affiliate, summons up the image of cars of all shapes and sizes moving on a highway at different speeds. The competition is rather intense as the market is flooded with products and services similar to yours that also vie for the same customer base. The team that coordinates the affiliates is constantly challenged to find new customers and boost growth.
Capitalizing on an affiliate who is self-motivated, seems to have a growth mindset, and grasps the nuances of product promotion without necessarily having solid sales experience catalyzes your efforts to showcase your business using significantly less time than your counterparts. Ultimately, a direct relationship with your affiliates is highly valued: you can adjust your marketing strategy based on your business objectives and customer needs at any time.
Boosting traffic and making more money
Affiliate partnerships come in all varieties. They can be built from existing contacts in social media – for example, companies can mention you in their Twitter accounts – or small personal pages like blogs or prominent websites that spread the word about your offerings. From the smallest to the biggest sites, everything can help increase traffic to your website – the more sites that link to your business page, the better chance you will have to convert those random visitors into customers.
Expanding or selecting your target audience
Affiliate partners have wormed their way into nearly every product category and type of service. Whether you’re looking to venture into a popular industry like fashion, publishing, education, and transportation, or something more niche like handmade items or eco-friendly products, it doesn’t have to be intimidating: there will always be websites with relevant content that identify with your objectives.
Those affiliate partnerships allow you to explore terra incognita – new markets that you otherwise would not have the means to break into – as supplementary to your existing target audience. Conversely, affiliates who understand your industry help you reduce spending your budget to attract customers who wouldn’t totally align with your products.
Viable business idea
An affiliate program eliminates the need – and cost – of having a marketing team, providing them with marketing material like banners, social media graphics, etc., crafted by you. Other than selecting an appropriate affiliate, little effort is required on your side – the affiliate takes over the promotion of your products and services.
| Affiliate programs in a nutshell |
|---|
| The right affiliate partners, with strong motivation and persuasive skills, can make the difference when it comes to promoting your business in your niche market(s). The marketing strategy can also be adjusted at any time. |
| Affiliate programs increase the chances of gaining traffic. Tapping into the potential of social media and popular websites, affiliates can reach a wider audience. The more sites that link to your business page, the better chance you will have to attract paying customers. |
| Affiliate programs reduce advertising costs. |
Examples of affiliate programs
Amazon Associates
Amazon Associates is one of the most successful affiliate programs that pays you a fee in exchange for promoting the products and services that sell on Amazon. This is lucrative, especially for website owners and bloggers who could earn some extra money when someone follows their links and proceeds with a purchase within the first 24 hours. Referrers could earn up to 10% in referral fees.
Coupler.io
The efficiency and cost-effectiveness of the affiliate program by Coupler.io provides a leg-up over the competition when it comes to seamless data integration. The program award affiliates 50% recurring commissions for each paid subscriber to the service and 20% for each subscription renewal.
Shopify
One of the most famous e-commerce platforms, Shopify, has already got a network of thousands of affiliates around the globe. You can join this cohort of enthusiasts and start monetizing your audience from each new Shopify merchant referral. How much can you earn? As a rule, this is a 200% bounty for each successful merchant. For example, if the merchant that you referred signed up for a Basic plan for $29 per month, you’d get a $58 commission.
Why is an affiliate program important?
Affiliate programs offer a flexible and cost-effective method to showcase your business and generate new leads. Little wonder it is gaining sufficient momentum to boldly face email marketing, which used to reign over the digital marketing world.
The following marketing statistics for 2021 researched by the SaaS Scout team underline the prominent role of affiliate programs:
- 15% of social media ad revenues stemmed from affiliate marketing
- Affiliate programs accounted for 15%–30% of all sales
- $12 billion of annual affiliate marketing spending reached the US
Differences between a referral and an affiliate program
Referral and affiliate programs might sound interchangeable to those who might not be well versed in marketing as they both rely on incentives to drive business growth. However, the underlying strategies that aim at this goal are fundamentally different.
The key difference is that a referral program awards existing customers for each person they bring in, whereas affiliate programs mobilize bloggers, influencers, industry experts, etc., to find new customers. As a result, the level of relationship between referrers and businesses differs: in referral programs, the relationship is more intimate, while in affiliate programs, it is often indirect.
| Referral programs | Affiliate programs |
|---|---|
| They typically rely on existing customers for spreading the word about the offered products and services | They typically engage bloggers, influencers, industry experts, etc., to find new customers |
The different types of advocates involved in each marketing strategy also have an impact on the target market. Referrals are limited in their ability to expand their reach beyond family, friends, or colleagues. This is not necessarily bad as people tend to have a higher degree of trust in recommendations from people they know. Conversely, affiliates tend to have a wider ad circle that necessarily includes your business’s target audience. As a result, they can more easily advertise your business to your niche market(s).
| Referral programs | Affiliate programs |
|---|---|
| They cannot control what types of customers the business attracts. The reach of this program is rather limited to family, friends, and colleagues. | They are more likely to attract customers interested in the offered products and services. As a result, they can more easily target niche markets. |
Another relevant factor is the type of industry or niche involved. Referral programs are ideally suited to e-commerce or service applications like Zulify and Uber. But when it comes to niches like health and sports, personal development, or hobbies (e.g., gaming, music, technology), affiliate programs work best.
Affiliate link vs. referral link
Referral links lie at the heart of referral marketing. Each customer that participates in a referral program receives a unique link that keeps track of the referrals they make and of the actions that the referees take, i.e., email sign-ups, a subscription to a service, a purchase, etc.
Here is what it looks like when a referrer invites a peer to the program. The latter receives a unique referral code (as depicted) to get a discount. All they have to do is to share the link through email, text message, social media platforms, or through groups on WhatsApp and Facebook Messenger and hope that the peer will click on the referral link.
An affiliate link is also a unique URL that contains the affiliate’s ID or username and is essential for monitoring the online performance of the affiliate. An affiliate link is assigned to each advertiser as soon as they join a company’s affiliate program, helping track any traffic, subscription, or purchase that stems from that link. They also help identify the best-performing affiliates and reward their efforts accordingly.
Affiliate links come in many forms, including text links, banner links, and text boxes. The former look like they are naturally ingrained in a website’s content and don’t look so much like ads. Banner links entail embedding an ad into a website, directing visitors to a specific page, while the text boxes allow visitors to search an online database on another site.
| Referral programs | Affiliate programs |
|---|---|
| Referral links are typically shared between two persons. | Affiliate links are publicly shared. They could be text links, banner links, and text boxes. |
How to create an affiliate link?
You can create affiliate links for your customers by yourself. However, affiliate software solutions help save considerable time and effort in creating custom links, tracking commission, and paying affiliates.
Let’s check out how you can do this in the example of the affiliate program by Coupler.io. The process involved is pretty easy to follow. You just fill in the signup form to share information about your business and interests. Shortly after, you receive an email that walks you through the details of your partnership and contains an affiliate link.
The program lavishes great economic benefits. For each person who signs up for the paid Coupler.io plan, you receive a 50% commission for their first processed subscription payment. For every following subscription renewal, you earn a 20% commission.
Everyone is welcome to join Coupler’s affiliate partner program. Whether you are a data consultant who helps customers efficiently manage, process and transform their data or a content creator who has built an audience on a blog or a YouTube channel, or a web educator who shares the most efficient tools with their students – you will certainly benefit from this partnership.
Best practices to create a referral program
Offer a high-quality product/service
Ensuring high-quality products and services and providing excellent customer service is crucial for helping consumers appreciate what you have to offer. Recommending good products improves your customer retention, builds trust, and ultimately, increases your revenue.
Determine the type of your referral awards
The first step is to decide who is the recipient of the referral reward as this sets the stage for all other elements in your program, for example, fine-tuning the tone and voice of your message. Investing in one-side or double-sided referrals – that means both the referring customer and the referred user share a profit – depends on your brand and business. The latter is obviously more expensive compared to its single-sided counterpart but could encourage people to persist and share more.
The next step involves selecting the sort of incentive for the participants. For example, this might be a cash/gift credit, free products or subscriptions, or reward points/cash back on future purchases.
Best practices to create an affiliate program
Decide which products you wish to promote
It is up to you to promote as many products as you wish. Depending on the business, it might sometimes be preferable to focus on one or a few successful products than following a scattergun approach. Limited offerings could enable you and your affiliates to more clearly figure out how to sell effectively and which is your target audience. They also enable affiliates to have better product knowledge, which in turn adds to the consumers’ trust in your products and services.
Decide on the affiliate commission rates
With so many affiliate programs out there, you might ask yourself whether the commission rates you offer to your affiliates are normal and competitive. Certain factors might help you determine the maximum rate you can afford to pay.
First, you need to determine your profit margins. The average customer lifetime value (CLV) – the amount of money your business expects to earn over the course of your relationship with the average customer – simplifies things: the longer the customer sticks with you, the higher this value becomes. Therefore, your affiliate commission must be below your average CLV to be sustainable. Second, you need to find out what your competitors are offering. Considering that every vertical has its own standard commission rates might help you narrow down your choices. Third, decide whether you will offer commission bonuses to reward top affiliates.
Recruit the right affiliate partners
Your affiliate program’s page plays a big role in attracting new affiliates. Make sure you place an easy-to-find link to the page of the affiliate program on your website. The page should explicitly state key information about the program, such as the commission rates you plan to offer, the benefits of joining the program, how to apply, and the terms and conditions.
You could also leverage both social media and email marketing to reach niche bloggers, social media personalities, industry experts, or even your existing customers. Have them test your products or services for free first, then invite them to your program and encourage them to publish reviews.
Another viable option for connecting with potential affiliate partners is to join affiliate communities like Refersion, JVZoo, ClickBank, etc. Ultimately, you could opt for an affiliate marketing software platform for creating your own network, which could prove more profitable in the long run.
Referral program vs affiliate program – which option to choose
Now that we have gone through both concepts, you have probably realized that both are tools in your marketing mix that can be used differently depending on the goals and structure of your business. There are many compelling reasons to use referral and affiliate programs to spread the word about your business, connect with people who want to find out more about your products and services, and increase sales. It is totally up to you whether you opt to use one or both marketing strategies. In any case, the key to success is to have a clear strategy on what you want to achieve and implement the right tools to evaluate how successful your program is and whether you are getting a solid return on investment.
