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Referral Program vs. Affiliate Program: Which Is Right for You?

What's the difference between a referral program and an affiliate program? We compare how each type of program works and which one is best for your business.

Updated September 16, 2020

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Digital marketing comes in many forms, but two often cause a bit of confusion – referral programs and affiliate programs. Are the two really that different? We compare both types of programs and find out.

Referral programs vs. affiliate programs

A referral program gives current customers and users incentives each time someone they refer makes a purchase. The key participant of a referral program is the customer. And the incentives are often a one-time discount, gift card, or a service upgrade. Learn more about referral marketing and why businesses need a referral program.

An affiliate program, on the other hand, compensates actual marketers, bloggers, influencers, and other partners – in this case, called affiliates – for any customers they bring in. A big factor (and key difference between affiliate and referral programs) is the affiliate partner does not have to be a customer. More often than not, the affiliate is actually not a customer, but has an audience that overlaps with the company’s target market.

Affiliate program rewards are usually cash-based, such as a percentage of the sale. An affiliate incentive can also be a one-time payout for each sale or a recurring percentage (i.e., if the product is a monthly subscription, annual payment). Learn more about affiliate marketing programs.

Examples of referral programs vs. affiliate programs

We go over some well-known examples of to help highlight the difference between referral programs and affiliate programs:

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 member. This popular referral program played a huge role in ramping up Dropbox’s membership signups when they first launched back in 2010.

dropbox referral program

Uber’s referral program

Another brand that’s mastered the art of referrals is Uber. The referral program gives both the current user and the newly-referred user a free ride. Because of this generous offer, Uber’s referral program has been a success and helped the company rise to the top of the ride-sharing industry. In fact, other similar services have adopted similar referral programs and also seen a large increase in their user base.

uber referral program

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 links are actually unique, allowing Amazon to track where sales come from. When they see a new sale coming from a particular affiliate’s link, they compensate the affiliate with a percentage of the sale.

amazon-affiliate-program

Target’s affiliate program

Similar to Amazon Affiliates 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 that Target has many physical locations. So if someone sees an item on an affiliate’s page, they might choose to buy the item in-store themselves, leaving the affiliate without any commission. However, since Target does offer free and convenient shipping (above a certain amount), many customers will opt make their purchase right away.

target-affiliate-program

Differences between affiliate and referral programs

To further understand the differences between affiliate vs. referral programs, and help you decide what work best for your brand, here are some key points to consider.

The individual referring new customers

Referral programsAffiliate programs
Referral programs typically target existing customers, fans, or advocates. A form of word-of mouth marketing, referral programs give each customer a unique referral link and reward for successful referrals.Affiliates can be anyone interested in generating income from their referrals. Sometimes, an affiliate is even contacted directly by the business. Most of the time, however, affiliates sign up for the affiliate program, get their link, and then promote it through their own channels.

The relationship with the potential customer

The biggest difference between an affiliate vs. referral program is the type of relationship between the person who is referring (affiliate or customer) and the person being referred to a brand or product.

Referral programsAffiliate programs
Referral marketing works best when someone has an existing relationship with the referral. Successful referrals usually come from friends, family, or colleagues. The existing relationship and trust between parties is what leads to a successful referral.In affiliate marketing, there is no relationship between the two parties. The person who clicks on the affiliate link doesn’t need to personally know the affiliate, but usually trusts them to some degree. (For example, subscribers to a Youtube channel or podcast are usually open the influencer’s recommendations.)

How the program is shared

The strategies for sharing these two types of rewards programs are slightly different. Referral programs usually take a more direct approach, whereas affiliate programs rely on people landing on an affiliate page.

Referral programsAffiliate programs
Referral programs require a more specific, intentional approach. Most messages are sent through direct channels, such as email, text, or social media messages. This personal communication, 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.

 

affiliate programs vs referral programs

The type of rewards

Rewards are the ultimate driving factor in affiliate or referral programs. Even if the person really loves the business, it’s the incentive that will keep them motivated to refer others.

Rewards can vary greatly from program to program. Aside from the type of reward (i.e., cash, service upgrade, swag), programs can also offer a one-time reward or recurring rewards.

Referral programsAffiliate programs
Incentives for a referral program are usually in the form of discounts, store credit, or cash back. Rewards can also be given to only the existing customer (the one referring others), the new customer (the referral), or both.Affiliate programs typically give out cash-based incentives, in the form of a 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.

Customer lifetime value (CLV)

Customer lifetime value (CLV) indicates what you’ll 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 be a long-time customer with regular orders?

This also depends on the product or service you are selling. Some products are generally intended for one-time purchase, such as cars or larger equipment, but there may be other items and other services they need to purchase. Other products, such as consumables, will naturally keep the customer coming back.

Referral programsAffiliate programs
A referral program can work with a variety of products and customer lifetimes. However, a referral program works especially well for products with a higher CLV since referrals rely a lot on loyal customers and trust.An affiliate program usually works better on products with a lower CLV. As programs pay for every new customer, affiliates are focused more on quantity and scale.

Similarities between affiliate and referral programs

While affiliate and referral programs have many differences, they do share a few similarities. The biggest similarity is they both offer incentives to encourage others to promote the brand. Below are a few other ways affiliate programs and referral programs are alike.

Social currency risk

Both programs offer rewards for inviting others to become new customers. Whether it’s an existing customer or affiliate, this naturally involves a level of risk. What happens if the referred party doesn’t like the product or service? Or has a bad experience with the business? If things don’t go as planned, there is a certain amount of trust or social currency that’s lost from the referring party.

Referral programsAffiliate programs
Since referrals come from the existing customer base, there’s an implied guarantee the product or service is worth trying. When the customer recommends something to their family and friends, that person expects the product or service to work for them, too.In affiliate marketing, leads come from a public source, like a blog post or landing page. Even if there’s no direct communication, the visitor decides to click on the link based on their trust of the affiliate’s reputation.

Repeatable marketing channels

Both affiliate programs and referral programs are intended to drive growth. They rely on other parties to advocate for their business, and help bring in new leads and sales.

Referral programsAffiliate programs
By inviting customers to share something with their friends, referrals create a more meaningful connection with the customer. Though referral programs may not bring as much traffic as an affiliate program, they do see higher quality leads and higher conversion rates.Many affiliate programs tie their links into engaging content, such as high traffic blog posts or videos. This content has little to do with any actual relationship, but works because someone was looking for the product and found it in the affiliate’s content.

Deciding between the two types of programs

Now that you know the basics of referral programs vs. affiliate programs, you can decide which one is the best for your business.

Business typeReferral programAffiliate program
EcommerceDefinitelyCan be good, if products have higher margins
SaaS (B2C)Great for giving consumers a credit or freebiePossible, but price points are generally lower, which won’t attract many affiliates
SaaS (B2B)Yes, as long as you provide attractive incentivesGreat for high-transactional sales with no sales person. (It can be pricey to compensate both the affiliate and salesperson.)
Local servicesGreat for services that are more expensive or paid for monthlyCan be difficult for offline businesses and longer sales cycles
Consulting or coaching servicesCan be good, but often has a lower volume of customers to referGreat, but the sales process can be tougher to track electronically
GymsGreat way to give credits or discounts on member programsCan be difficult to target local leads for a gym through online links

 

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