Referral and affiliate programs are two different strategies that reward a person for bringing customers to the business. Here, we’ll discuss the major differences between both programs in detail.
Digital marketing comes in many forms. Every business has to develop its online marketing strategy based on core values, long-term goals, industry standards, and customer expectations. While strategies like SEO, SEM, SMM, PPC, etc., are easy enough to understand, many businesses tend to mix up referral and affiliate programs. After all, both methods use another person or entity to bring leads and customers to the brand.
However, there are distinct differences between referrals and affiliate programs. Some brands use both programs to further increase their reach in the market. Other brands might choose to use only one of these strategies, depending on their niche. For example, DataToBiz has an affiliate partner program to expand its AI products and services in the global market.
But what exactly do referrals mean, and how does an affiliate program help a business? What are the main differences? Let’s find out more about affiliate vs referral programs.
A referral program is where existing customers of a brand refer its products and services to others. Customers get store credits, one-time discounts, gift cards, or coupons when their referral generates a sale for the business. For example, you purchased health supplements from a brand. The company provides a unique link to share with your family, friends, and acquaintances. When they use your link to check the brand and place an order, you will get a thank-you gift for referring a new customer to the business.
Referral programs are designed to encourage existing customers to bring more customers to the brand by offering them an incentive or gift. Statistics show that referrals grew by a whopping 425% during the first wave of the Covid-19 pandemic. In fact, 92% of customers trust referrals from people they know, and the customer retention rate is 37% higher when they come through referrals.
An affiliate program is where the brand ties up with a third party to promote its products and services in exchange for a commission or reward. Here, the third party can be bloggers, website owners, influencers, freelancers, content creators, and even small business owners with an existing audience base. The affiliate doesn’t have to be a customer.
For example, if a website owner is interested in earning additional income, bonus, or commission through profit-sharing networks, they can join affiliate programs to use their platform and audience for the same. The publisher will earn a commission depending on the terms and conditions of the affiliate program. The affiliate marketing program is a source of additional income for many publishers.
Around 81% of advertisers (brands) and 84% of publishers (website owners) use affiliate marketing. Close to 65% of affiliates strongly agree that joining an affiliate program brings more customers. About 26% of affiliates earn between $81K and $200K per year, while 20% of affiliates earn between $21K and $80K, with 19.5% earning more than $1000K per year by being an affiliate.
Here we’ll compare referrals and affiliate programs to highlight their differences at various levels.
Referral programs are a type of word-of-mouth marketing. It targets current customers, brand advocates, and customers who give high satisfaction ratings to the business. They are provided a unique link and asked to share it in their network. The sales that happen through the link are attributed to the customer, who becomes eligible for a reward or gift.
Affiliate programs are developed for content creators and website owners who have already established themselves in their niche. The brand aims to attract the affiliate’s audience through the program. Each affiliate is also provided with a link, used by the audience to know more about the brand they promote. The affiliate earns a flat fee or a commission (or both) for generating leads and bringing customers to the business. An affiliate may or may not be a customer.
Referrals are usually successful because the customer has a closer relationship with the other person. There is a direct relationship between both parties, and this benefits the brand. You are more likely to convince your friend or cousin to buy a product if you know their preferences and have a positive relationship with them.
In affiliate marketing, the affiliate doesn’t need to have a direct relationship with the target audience or website visitors. Any person who visits the website can click on the affiliate link. However, even affiliate marketing will be successful when affiliates or publishers inspire trust in their subscribers. A good example is an influencer or podcaster. They don’t personally know every one of their followers but have some amount of influence on them and can encourage the followers to try a product or service.
Referrals use a direct approach with a clear intention. Customers send referral links to people in their network as chat messages on social media platforms or texting apps. The customer explains the product or service to their friend and convinces them to try it. They play the role of a salesperson but with a personal connection to the prospective lead. Referral links are not usually posted in blogs as customers have a better chance of convincing the other person with a direct approach.
Affiliate marketing is less direct in its approach. The links to the affiliate products or services are included in informational blogs, social media posts, newsletters, etc. Unlike referral links, affiliate links are not sent as direct messages.
Affiliates don’t always directly promote the brand. They hint or provide options, adding a disclaimer about their connection with the business. Moreover, some affiliate links visitors to a landing page where they have to complete an action. In such instances, the affiliate earns a commission when the visitors follow the necessary steps on the landing page (like sharing email id, completing a survey, etc.).
Rewards are the primary driving factor behind both marketing programs. However, the rewards are provided in different ways.
Referral programs can offer a one-time reward or recurring benefits. Most common referral gifts include discounts on the next purchase, coupon codes, gift cards, store credit, or cash back. Some referral programs reward both parties (the customer and the new buyer), while some are limited to the existing customer. The new customer is likely to get a referral link for themselves so that they can get rewards by bringing another person to the business. Nevertheless, referral programs rarely offer money as a payment (Google is an exception).
Affiliate programs have an elaborate payment model. The commission or flat fees are paid in money. Affiliates may get discounts, but they get a guaranteed commission when others buy through their links. The money is deposited into their accounts, as per the terms of the affiliate program. This can be instantly (in the next 72 hours), once a month, or after the affiliate earns the minimum threshold amount decided by the brand. Affiliates who generate more business can receive additional rewards like a free product or subscription.
Customer lifetime value is the amount a brand expects to earn from a customer throughout their association. LTV will be less for one-time customers and higher for those more likely to make recurring purchases. However, this also depends on the product being marketed. Cars, electronic gadgets, and large equipment are purchased less often.
Referral programs work for one-time and recurring products but are mostly aimed at products with greater LTV. This is because emotions and interpersonal relationships are factored into the equation for a customer to successfully convince their friends to try a brand they like.
Affiliate programs tend to deliver better results for products with lower customer LTV (assuming that the brand is already popular in the market). Also, not all affiliate programs pay recurring commissions. Hence, affiliates are focused on expanding their visitor base to increase conversions.
DropBox customers earn more space in their accounts when they bring successful referrals. Instead of paying extra for more storage space, they refer the service to friends or family. Dropbox Basic referral program offers 500MB per referral (capped at 16GB), while the business plan offers 1GB per referral (capped at 32GB).
Google has a referral program for G Suite programs. The referrers earn $15 for G Suite Basic and $30 for G Suite business. However, a referrer can earn a maximum of $3000 for referrals.
Airbnb offers rewards to both parties in the referral program. The referrer gets credits between $25 and $95, depending on the action taken by the referee (new customer).
DataToBiz Data Engineering Staff Augmentation Affiliate Program is one of the best affiliate programs out there for beginners. With an APE (Apply, Promote & Earn) structure, the affiliate receives a generous 5% commission on their first month’s revenue. For beginners, the program ensures hassle-free payouts, making it a rewarding choice as they embark on their affiliate journey.
Amazon has a large network of affiliates from around the world. It pays up to 10% commission for most products and slightly higher amounts for games, etc.
Shopify offers a global affiliate program with a fixed commission. Affiliates can choose if they want biweekly payments or when the balance reaches a certain amount. The minimum withdrawal threshold is $10 (USD).
Referral and affiliate programs are used by various businesses to reach out to a wider audience using customers and third parties. Now that you understand the core differences between affiliate vs referral programs, you can choose a program that best suits your interests and income requirements.
For those aspiring to be successful affiliates in 2024 or thinking about joining referral programs, review the pros and cons mentioned above to make an informed decision. Success in these spaces depends on understanding multiple aspects, so take a moment to consider your goals before starting your journey.
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