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You're here to grow your business, and we're here to guide you. Affiliate and referral programs are powerful tools for expansion, but they're not interchangeable. In this article, we're diving into referral and affiliate programs - both powerful, yet distinct strategies for business growth.
I'll define them, outline their key differences, and most importantly, guide you on choosing the best fit for your business.
The good news? An affiliate referral program is easy to set up with Friendbuy. Let’s begin.
Understanding Referral Marketing and Affiliate Marketing
Before we jump in, let's make sure we're on the same page about what these programs actually are. First up, referral programs:
Referral programs are a marketing strategy where businesses incentivize their existing customers to bring in new ones. It's like turning your customers into brand ambassadors. They get rewards (like discounts, free products, or cash) for referring people from their network who become customers. It's a win-win situation – your customers get rewards and you get new customers who already have a positive impression of your business.
Affiliate programs, on the other hand, involve partnering with individuals or entities (affiliates) who promote your product or service to their audience. Affiliates are typically bloggers, influencers, or other businesses whose audience aligns with your target market. They earn a commission for every sale that comes through their unique affiliate link. It's like having a sales team that only gets paid when they succeed in making a sale.
These two programs might seem similar at first glance – they both involve third parties promoting your business. But as you'll see, there are key differences that make each one suitable for different situations and types of businesses.
Similarities Between Referral and Affiliate Programs
Now that we've got the basics down, let's look at where affiliate and referral programs overlap. Understanding their commonalities will help clarify their unique benefits and uses, making it easier to choose the right program for your business.
Dependence on social currency
In the digital age, social currency is pivotal. If you've watched the Black Mirror episode "Nosedive," you know how significantly social ratings can impact lives. But we're not in a dystopian sci-fi show.
Here, social currency helps businesses grow. Both referral and affiliate marketing programs take advantage of this principle, using the power of social influence to spread the word about your brand.
Similar to the 'Nosedive' episode of 'Black Mirror' where every social interaction is rated, affiliate and referral programs depend on the social currency of the individual promoting a product or service.
The higher their social credibility or influence, the more effective their referral or promotion is likely to be.
Function as repeatable marketing strategies
Just as a great movie is worth re-watching, successful marketing campaigns are worth repeating. Referral and affiliate programs aren't one-hit wonders – they're designed to bring continuous benefits to your business.
The magic lies in their repeatability. Once set up, these programs continue to operate, bringing new customers to your business without the need for constant reinvention. They're the gift that keeps on giving, creating a self-sustaining cycle of growth.
Want to know just how well referral marketing works? Read our curated list of all of the best referral marketing statistics from our customers over the last decade.
We love strategies that give us the biggest bang for our buck, and that's exactly what affiliate and referral programs offer. They keep marketing costs low and customer revenue high. (Read all about Referral Marketing ROI to see how else businesses can benefit from Referral Marketing.)
They're cost-effective. Rather than shelling out big bucks for traditional advertising or PR campaigns, these referral campaigns and affiliate programs tap into networks of potential customers that already exist. You only pay when there's a successful referral or sale, making these strategies a more efficient use of your marketing budget. In other words, they're lean, mean, business-growing machines.
Read how these successful referral campaigns increased ROI for their marketing costs and increased customer revenue organically: 10 Referral Program Examples From Our Top Performers
The Key Differences Between Affiliate And Referral Marketing
Let's dive into the key differences between affiliate and referral programs, where we'll uncover the factors that set them apart.
Types of rewards
This is the biggest difference that Advocates and Affiliates will understand well.
Referral programs often offer referral incentives like discounts, store credits, coupons, or even cash back to the customer making the referral. The rewards can be tailored to the Advocate, the referred customer, or both.
Gewnyth Paltrow’s lifestyle brand Goop uses Friendbuy to run its referral program, offering store credit to both the Advocate and the Friend.
DreamCloud uses Friendbuy to run its referral affiliate program, offering store credit to referred Friends and Amazon cash to Advocates.
Each referral campaign relies on word of mouth marketing and brings the Advocate and Friend back to the brand.
In contrast, affiliate program rewards primarily focus on cash-based rewards in the form of commissions. Affiliate advocates earn a percentage of each sale they generate or a flat fee for each referral that leads to a purchase.
Affiliate partners may also receive free products as a bonus, especially if they've established a strong partnership with the business. Since affiliate programs rely on affiliate marketers promoting the brand, brands tend to treat their affiliate partners well. 🤑
Athletic Greens has a well-known affiliate program that rewards Affiliates with $15 for every referred customer. All the Advocate needs to do is share their affiliate link.
We’ll see in the next section how this looks when an Affiliate promotes the Athletic Greens referral program.
Source of referrals
Referral programs primarily rely on existing customers, fans, or brand advocates who have firsthand experience with your products or services. These loyal customers become your ambassadors, spreading the word about your business to their personal networks.
Ilia demonstrates this well by promoting the brand’s referral program regularly in email communications. The email gives an intimate feel to the referral program, encouraging customers to share with people in their lives.
Affiliate marketing programs, on the other hand, open the doors to a wider pool of content creators. Affiliate partners can be bloggers, influencers, or other partners who are interested in generating income by promoting your business. They don't necessarily need to have prior experience with your products, but their audience aligns with your target market.
Affiliates, such as influencers, can share their affiliate link with their followers and earn cash for each referred follower.
Fitness influencer Morgan Tyler, for example, shares her referral link with her followers regularly and even includes a link to her Athletic Greens posts right in her Highlights.
When I click on her referral link, it takes me to a referral landing page where I am prompted to “unlock the offer”.
Using the Friendbuy platform, Athletic Greens is able to seamlessly scale its referral affiliate program and increase both customer retention and acquisition.
Relationship with the business
Another crucial difference between a referral program and an affiliate program is the relationship the Advocate has with the business.
Referral marketing programs thrive on pre-existing relationships. Customers refer their friends, family, and colleagues because they genuinely believe in your offerings and want to share their positive experiences. There's a level of trust and personal connection that drives successful referrals.
In contrast, affiliate marketing programs operate in a more indirect manner. The person clicking on an affiliate link doesn't need to personally know the Affiliate. They might come across the link through a blog post, social media platform, or other online channels. Trust is established based on the reputation and expertise of the affiliate, rather than a direct relationship.
This is perhaps the key difference between referral and affiliate marketing strategies.
When it comes to the target audience, referral marketing programs target individuals known to the customer making the referral. These are people within their personal circle who are more likely to trust the recommendation. It's a close-knit network of family, friends, and colleagues.
In affiliate marketing programs, the target audience expands beyond personal connections. Affiliates share their content publicly either on different social media platforms or their own website, reaching a broader audience who may have a general interest in the products or services being promoted. It's about casting a wider net and leveraging the reach of the Affiliate's platform.
Affiliate marketing relies on this reach to organically increase revenue.
Tend, a dentistry business with multiple locations on the East Coast, is a great example of this. A traditional dentist’s office would benefit from a traditional referral program.
A dentist’s office that has multiple locations and a much wider audience? That’s where a referral affiliate program comes in handy.
By offering a $50 Amazon gift card for referred customers, Tend is encouraging anyone and everyone to recommend their services no matter the immediate personal connection to the brand.
Customer lifetime value (CLV)
Lastly, customer lifetime value (CLV) plays a role in determining the ideal program for your business. Referral programs work well with products or services that have a higher CLV, as they rely on the trust and loyalty of existing customers. On the other hand, affiliate programs can be more effective for businesses with a lower CLV, as they emphasize quantity and scale by attracting new customers through the reach of affiliates.
Choosing Between Referral and Affiliate Marketing Programs
Now that we've set the stage, let's chat about how to determine which of these programs fits your business needs like a glove.
Who Referral Programs Are For
Referral programs work great for businesses with a strong customer base, highly satisfied customers, and products or services that are frequently used or bought.
Here's a closer look at the sectors that could benefit from referral programs:
B2C Subscriptions: Subscription-based services, like meal kits or streaming platforms, can utilize the loyalty and satisfaction of existing subscribers to bring in more customers.
B2B SaaS: Software as a service (SaaS) companies can benefit from their satisfied customer base, who can recommend the software to other businesses.
Financial Services: Banks, credit cards, and financial apps often offer referral bonuses, as customers are more likely to trust their finances to a company recommended by a friend.
Online Insurance: Similar to financial services, insurance is a trust-based industry where a personal recommendation can make a significant impact.
Advantages of Referral Programs
Disadvantages of Referral Programs
Who Affiliate Programs Are For
Affiliate marketing is perfect for businesses with products that can be effectively promoted by influencers, bloggers, or experts in their industry. These Affiliates likely earn a living from the commissions, so cash rewards work best here.
Here's a glance at the industries that could benefit:
Online Education: Course creators and educational platforms can greatly benefit from affiliates, who can promote their courses to the right audience.
eCommerce: From clothing to electronics, a variety of online stores can leverage affiliate marketing to reach potential customers across different segments.
B2B SaaS: Software as a service (SaaS) companies can scale their programs easily without any physical products to manage and offer.
Advantages of Affiliate Programs
Disadvantages of Affiliate Programs
Businesses Where Both Referral and Affiliate Programs Work
Some businesses have characteristics that allow them to benefit from both affiliate and referral marketing.
Here are a few kinds of businesses that could have both types of programs:
B2C Subscriptions: These companies can tap into the loyalty of their current customers for referrals while also using influencers or bloggers for affiliate marketing to reach potential new customers.
Online Education: Students who have taken a course can refer friends, and influencers in the industry can promote the course to their audience as affiliates.
Restaurants: Regular diners can refer friends and family while food bloggers and influencers can serve as affiliates, reaching a wider audience.
eCommerce: Satisfied customers can make referrals, while influencers and bloggers can introduce the brand to their audience.
Ready To Scale Your Referral Program?
Take it from us, we’ve been doing this for 10 years. We’re here to help you scale your own affiliate and referral marketing program, like we did with Walmart, Casper, Sam’s Club, and so many others. If you're ready to add an affiliate program to your marketing mix, then book a call with us to see how we can support you.