Referral Programs vs Affiliate Programs: Differences
If you wish to generate higher traffic or expand your customer base and have the means to support it, consider running an affiliate program.
Abdul Wahab
People often hesitate placing their bets on a new startup or buying their latest offering, and rightly so. Trust and reliability is scarce these days, and the current marketing trends barely make up for it.
Even though media ads have gone flashier and content more catchy, an average consumer would still rely on a friendly recommendation before buying from a new brand. Word-of-mouth drives $6 trillion of annual consumer spending - a massive potential for companies to leverage through referral programs.
Referral marketing capitalizes on consumers’ love for a brand or its products to capture new leads. Satisfied customers will vouch for your business, considering you compensate them with amazing incentives. But they aren’t your only advocates.
If you wish to generate higher traffic or expand your customer base and have the means to support it, consider running an affiliate program. Sure, lines can be a little blurry between affiliates and referrers. This articles entails everything you should know about affiliate and referral programs before finalizing your digital marketing strategy.
Referral Marketing: Propelling Growth through Word of Mouth
Happy customers are a company’s biggest asset. Not only do they stay loyal long-term but are keen to share their experience with others, opening up a stream of leads entirely based on word-of-mouth marketing.
Customer referral programs motivate or incentivize customers to share your product or service with their friends, urging them to be your next customer. The incentives normally include discounts, in-store credits, or service upgrades, something that ties referrers to your brand.
For customers, it’s all about promoting your brand to new users and reap rewards in return, ideally for their friends as well. Referral rewards help companies initiate relationships with incoming leads on a positive note, hopefully turning new customers into brand advocates.
Genuine endorsements coupled with attractive rewards can kick off a chain reaction of referrals ultimately contributing to your customer base.
How Does a Referral Program Work?
The reason for referral marketing’s unimaginable success for most businesses is that it taps into basic human psychology. Most people do not send invites just to receive a cashback or an account upgrade, but share things with friends out of altruism - knowing that it will benefit them just as much.
Referral marketing works on behalf of the incentives you offer and the way you offer them. Make it alluring enough to trigger a positive response. Here’s how a referral campaign plays out:
- The target audience is informed about the program and its propositions through various channels.
- Interested folk are led to participate as per the program rules, and receive unique referral links assigned to their account.
- Whenever a person signs up or makes a purchase using your link, a successful referral will be attributed to your account which translates into a reward.
- Many referral programs work well when automated, meaning that tracking, attribution, and reward distribution are handled by software which makes them efficient and scalable.
What Referrals Can Do for Your Business?
Compared to other forms of marketing, referral programs can grow your customer base at a fraction of the cost. With no investment and limited operational costs, the strategy has popularized among startups with compromised resources.
Here are a few reasons why implementing a referral strategy might be beneficial for your company (supported by referral marketing statistics):
- Boost Customer Acquisition: Since endorsements come from trusted sources in your friend list, it helps establish trust faster than any other means. A Nielsen study states that 92% of consumers trust recommendations from friends and family over other forms of advertising, increasing your chances of capturing maximum leads.
- Inoke Loyalty in Customers: Incoming customers who inherit the trust of their referrants tend to stick longer with a brand, given that it offers amazing products or services. Referred customers exhibit a 16% higher liftime value than non-referred clients, which translates into repeated business and higher sales revenue over time.
- Reduce Marketing Costs: No need to invest on media adverts or active email campaigns, when you have loyal customers doing the job for you. Referrals usually come from existing consumer networks which lowers the cost of acquisition. A study finds that referred customers exhibit a 25% higher profit margin compared to other leads.
Referral Marketing Program: An Example
As a marketer, you cannot expect to manifest loyalty in customers and improve your sales revenue without enacting some out-of-the-box referral marketing ideas.
Whether you offer lucrative incentives or devise an engagement strategy, the goal is to hook your audience and entice them to become your brand ambassadors. Here’s how a SaaS company propelled growth by a referral marketing strategy.
Dropbox
If you are launching a SaaS product, Dropbox presents a touchstone referral marketing example to fast track your growth. The startups implemented a newfound approach to incentives that no other business had introduced yet.
Instead of offering cashbacks or credits, Dropbox “rewarded customers with what they needed” and tied them to the platform. Being a cloud storage platform, it offered users free storage space up to 16 GB in exchange for referring friends to Dropbox.
Alt Text: Dropbox’s referral landing page.
It not only kept users onboard for long but also attracted an audience who was actually in need of extra storage space - killing two birds with one stone. The strategy paid in full, propelling over 2.8 million new users on board, a remarkable 3900% growth.
Affiliate Marketing: Strategic Partnerships for Business Gains
While the underlying concept is similar to referral marketing, affiliate programs rely on a more professional level. Instead of incentivizing existing customers to do its bidding, companies tie in with influencers, bloggers, or independent marketers to promote their message to a wider audience.
Affiliate marketing relies on strategic partnerships between a brand and affiliates - influencers or experts in the industry - for purely business gains. It’s a performance-based marketing structure, where affiliates earn a %age commission for every new customer they direct to a business.
For startups struggling to reach new clients, affiliates can be great promoters. Unlike referrers who can only refer your business to friends and family, affiliates broadcast your message to a widespread audience. This maximizes brand awareness and improves your chances of capturing maximum leads on a short notice.
How Does an Affiliate Program Work?
Affiliate marketing incorporates more than just friendly brand endorsements. Affiliates, being your partner, shoulder the responsibility of driving sales to your business. It’s a pay-per-conversion model, so more traffic means more sales. The more customers they refer to your platform the bigger their commission cheque.
Affiliates are content marketers in general. Companies often provide them with marketing creatives to publish on their dedicated forums. Many use standard advertising methods such as SEO, PPC, or email marketing to improve visibility and traction.
Affiliate marketers place trackable affiliate links within their blogs, promotional videos, or social media posts. If one of their followers clicks through the link, registers on the product landing page, and makes a purchase, the affiliate earns a reward.
Commissions can be a percentage of the sale or a fixed amount per lead, but either way it is something to be negotiated. Your ROI can fluctuate depending on the royalties you’re paying on each sale. Some affiliates take between 20% - 40% of an item price but it mainly depends on the cost-to-sell ratio.
What Affiliates Can Do for Your Business?
Unless you’re working on something truly groundbreaking, you’re bound to counter intense competition in the market. Brands with products or services similar to yours could be vying for the same customer base before you even commence the launch.
It is important to locate and partner with affiliates who have a good reputation and hunger for growth similar to yours. Here’s what aligning with an experienced affiliate marketer can do for your business:
- Maximize Exposure: It is challenging for new startups to amass a sizable user base without actively spending on media campaigns and press releases. Capitalizing on affiliates' existing following, can help you tap diverse customer segments. Get in touch with the right influencers to grow your presence globally.
- Risk Mitigation: With affiliate marketing there aren’t huge budgets on the line. The cost of conducting an affiliate program is proportional to the sales generated, so you don’t have to stress out on risking your advertisement funds. Referral marketing is the best referral revenue source for over 31% of online publishers.
- Establish Credibility: Affiliates are experts in their field and often boast of a following who trust and rely on their endorsements. Getting them to share good notes about your brand will automatically add to your reputation and pave the way for community engagement.
Affiliate Marketing Program: An Example
When compiling your affiliate marketing strategy, it’s best to review success stories of companies that have leveraged them impeccably. Marketers often look up to Amazon Associates to emulate their strategy, but the redundancy has made it ineffective in today’s ecosystem. Take a look at SkillShare’s affiliate program to broaden your scope for marketing efforts.
SkillShare
SkillShare - a digital education platform - attributes its popularity to influencers who repeatedly talked about it on their social media channels. The company directs its affiliate members to share new classes and content being created on SkillShare.
Alt Text: Skillshare affiliate program webpage.
What sets SkillShare’s program apart from the rest is that it compensates its affiliates quite lucratively. Affiliates earn a commission at both instances - when customers sign up for a free trial or when they buy paid subscriptions. The company has set a personal, real-time dashboard that lets ambassadors track their traffic, referrals made, and pending payouts.
All affiliate links to SkillShare have a 30-day cookie life, allowing affiliates to earn a commission on all purchases made up to 30 days after clicking on an affiliate link.
Referral Program vs Affiliate Program: Marking Key Differences
On the outlook, the boundaries between referral programs and affiliate programs may appear somewhat blurry. The differences between referral and affiliate programs aren't as steep. Both strategies have a lot in common - referrals, commissions and bonuses, and ofcourse, word of mouth marketing. But here are some defining factors that distinguish the two:
Affiliate and Referral Marketing: What’s Better for Your Business?
With a lot in common, there’s hardly any need to pit referral vs affiliate programs. Both rely on the power of word-of-mouth, consumers inclination to trust recommendations, and minimum budget expense.
A business can choose one, implement both at once, or reject them altogether. It all comes down to your business goals and how you intend to achieve them.
If you seek a broader reach and aim to leverage industry experts and influencers as your brand advocates, affiliate marketing may be more suitable. Implemented right, the programs offer a global market penetration, utilize diverse marketing channels, and a performance-based model which significantly lowers the costs.
However, if building customer loyalty and authenticity is your focus, a referral program might be the right choice. It's simpler to set up, relies on existing customers' social circles, and builds a niche community around your brand. No matter what type of program you choose, keep your budget and the target audience in mind, and implement affiliate marketing software before moving forward.
Closing Note
The incentives and commissions you offer in exchange for new leads play an elemental role in the success of your marketing campaign. Monetary or not, rewards can compel people to actively vouch for your brand - whether it’s in their social circles or in front of a broader following.
Apart from the differences between affiliate programs and referral program, there must be an equally brilliant product or service in store for any of the strategies to work. Advocates may send new customers your way, but if your product isn’t impressive as told, they will flock off. Invest your time and effort on mastering product development, and let Prefinery.com handle your marketing campaigns.
FAQs
Can I implement both referral and affiliate marketing programs?
Yes, it's entirely possible and often beneficial to implement both referral and affiliate marketing programs simultaneously. Combining these strategies will help you capitalize the loyalty of your existing customers through referrals and also leverage the broader outreach and influence of affiliate marketers.
How to know which marketing program is right for my business?
While there isn't much difference between the two, it depends on your business goals, available resources, and the audience you are targeting. Referral programs are great for building a loyal and dedicated user base. Whereas affiliate programs can assist your business better, if you want to boost customer base and increase sales revenue faster.