Affiliate vs Referral Programs: A Side-By-Side Comparison

Affiliate programs and referral programs are powerful customer acquisition strategies that tap into your business' word-of-mouth growth potential. Both leverage the power of personal recommendations and incentives to drive new customer growth, but they differ in key ways that are important to understand when deciding which approach is best for your business.

And although affiliate and referral marketing share the same goal of getting referrals through incentives, they target different audiences with different types of rewards. Referral programs focus on motivating existing customers to share with their personal networks, while affiliate programs typically engage third-party content creators or marketers to promote your brand to their audiences.

Here's a quick breakdown of the key differences between referral and affiliate programs:

What's an affiliate program?

An affiliate program is a performance-based marketing strategy where businesses reward third-party promoters (affiliates) for each customer or visitor they bring to the company through their own marketing efforts.

An affiliate program is when you leverage third parties (any person or organization) to refer you new customers. The reward is typically a recurring cash payout. These third-party promoters, known as affiliates, can include bloggers, influencers, review sites, or other content creators who have an audience that aligns with your target market.

These partners (called affiliates) can be any third party (person or organization, but more commonly individual marketers) that refers you with potential leads. Once leads convert into customers, you would provide the affiliate with a kickback of the revenue made from the sale. This performance-based model means you only pay for results, making it an attractive option for businesses looking to expand their reach cost-effectively.

If you want to provide a referral reward based on commission, chances are you want an affiliate program. This is particularly effective for businesses with products or services that have a wider appeal or higher price points, as it allows you to tap into larger audiences through established content creators and marketers.

Example: You provide 20% sales commission for every lead in a trial period who successfully converts into a paying subscriber. You pay out this commission every month to the affiliate, until the paying user cancels their subscription. This recurring commission model is particularly common in SaaS (Software as a Service) and subscription-based businesses, as it incentivizes affiliates to not only bring in new customers but also to promote products that have long-term value for users.

Aazar Shad has a great Twitter thread on how to do affiliate marketing:

Affiliate marketing is an easy & cheap channel to grow ANY business.

Many startups try it but they struggle to scale.

Here are 15 tactics that nobody told you about growing an affiliate program:

— Aazar Shad (@Aazarshad) September 13, 2021

What's a referral program?

A referral program is when you leverage your existing customers/users to refer you new customers. The reward is typically a discount, account credits, or any other incentive that is related to your product/service. Like an affiliate program, the reward can also be cash. However, referral programs often focus on non-monetary rewards that enhance the customer's experience with your product or service, creating a win-win situation where both the referrer and the new customer benefit.

There is a high probability that some of your customers/users are already sharing your product/service with their friends and family. Generally speaking, your customers are typically greater advocates for your business than affiliates, as they are the warmest connections for your new leads (their friends/family/colleagues), and thus the chance for conversion is higher, and the chance for churn is lower (stickier customers). This personal connection and trust between the referrer and the referred person is a key advantage of referral programs over affiliate programs.

When the reward for your referral program hits the motivational sweet spot with your audience, you unlock a highly sustainable, cost-effective acquisition strategy for your business. This 'sweet spot' often involves a combination of tangible rewards and the intangible benefit of helping friends access a product or service the referrer genuinely believes in. The key is to design a program that aligns with your brand values and resonates with your customer base.

What's the difference between an affiliate program and referral program?

While both affiliate programs and referral programs aim to drive new customer acquisition through word-of-mouth marketing, they differ in several key aspects including who does the referring, the nature of the relationship with potential customers, how the program is shared, and the types of rewards offered.

The simple way to differentiate between a referral program and affiliate program is asking yourself what is the incentive? If the reward is cash, it's most likely an affiliate program. However, this is an oversimplification, as the true differences lie deeper in the structure and goals of each program. Let's explore these differences in more detail.

However, it should be noted that sometimes an affiliate program can be the same as a referral program (e.g, when cash is the reward, your customers also become your affiliates). This overlap can occur in certain business models, particularly in the B2B sector or for high-ticket items where the line between customer and affiliate can blur. Understanding these nuances is crucial for designing an effective program that suits your specific business needs and goals.

This is often too simplistic a method of differentiating between an affiliate program and a referral program. There are some differences that are more clear cut. Let's examine these key differences in detail to help you understand which program might be best suited for your business:

Who is doing the referrals

The identity and relationship of the person doing the referring is a fundamental difference between affiliate and referral programs. This difference impacts not only who is promoting your product or service, but also how they promote it and to whom.

With affiliate programs, there is a chance that the person sending the customers to your business hasn't even been a customer of yours. They are simply looking for opportunities to monetize their work. This is often the case with bloggers, take for instance a food blog, they may not have used some expensive cooking tools but are able to embed links to them and potentially earn a cut of the commission after a purchase. Affiliates are typically content creators, influencers, or marketers who have built an audience that aligns with your target market. Their primary motivation is often financial, as they earn commissions for successful referrals.

A referral scheme will usually target customers who already have a direct connection with the business. They might have been customers in the past and are likely to still be active customers with the business at the time of participation. They will be given a unique code or link to use. These customers are typically motivated by a combination of factors: the desire to share a positive experience with friends, the opportunity to earn rewards, and the satisfaction of helping both the business and their friends. This personal connection and genuine enthusiasm for the product or service often results in higher-quality leads and better customer retention.

Connection between referrer and new customers

The nature of the relationship between the referrer and the potential new customer is another key differentiator between affiliate and referral programs. This relationship can significantly impact the effectiveness and conversion rates of each program.

Affiliates, through the nature of their platform, are often promoting your product or service to people they have no direct connection with. These people are part of the organic traffic that comes through to their website, such as blog readers or those researching new products to purchase. While affiliates may have built trust with their audience through their content, the relationship is typically not personal. Instead, it's based on the affiliate's perceived expertise or authority in a particular niche. This can be effective for reaching a wide audience, but may not carry the same weight as a personal recommendation.

Conversely, rather than promoting it on a specific platform, referral program participants will share their link or referral code with their known network, such as friends and family. This is how referral marketing is often closely linked to word of mouth marketing. The personal connection between the referrer and the potential new customer adds a layer of trust and credibility to the recommendation. When someone hears about a product or service from a friend or family member who has firsthand experience with it, they're more likely to trust that recommendation and act on it. This personal touch can lead to higher conversion rates and more loyal customers.

How it is shared

The methods and channels used to share affiliate links and referral codes differ significantly between the two types of programs. These differences in sharing strategies can impact the reach, effectiveness, and overall success of each program.

The general line is that referral programs take a bit more effort to share. The participant has to actively share their code with their network of friends and family. An affiliate, on the other hand, will have to make a great deal of effort building their platform in the first place but will then be able to rely on relatively passive commissions once they have enough traffic. This difference in sharing methods affects the scalability and reach of each program. Affiliate programs can potentially reach a larger audience through established platforms, while referral programs rely on the personal networks of individual customers. However, the personal nature of referral sharing often leads to higher conversion rates.

It is worth noting that referral program success rates are considerably higher than affiliate programs. This is because there is a far higher level of social proof and emotional marketing happening naturally. People tend to have a much higher degree of trust in recommendations from friends and family than they do from something they read online.

The rewards for participants

Referral programs often keep the rewards internal and offer things like free months, discounts or credit. Affiliates, often being one sided with their incentives, offer a commission like cash reward to the referring party.

How are affiliate programs and referral programs similar?

There are, as noted above, many differences between affiliate programs and referral programs, but there are also similarities.

Affiliate Programs Referral Programs
🤝
Leveraging Existing Customers
Investment of Social Currency
Scalability

— Chris Tweten 🍁 (@ctwtn) August 31, 2021

Leveraging Existing Customers

Both types of programs will spend a great deal of their marketing budget reaching out to their existing customers. The happy customers amongst their user base are far more likely to; want to participate at all, talk positively about the products, network with others who are similar to them and therefore share similar buyer personas, and look fondly upon an incentive program.

Investment of Social Currency

Social currency is based on the level of trust that is passed on with a referral. People, whether acting as a referrer or as an affiliate, are staking their personal reputation on the line. This creates an element of risk for the participant but passes on a great deal of kudos to those who are being targeted.

On the face of it, it might seem that there is less trust involved with an affiliate scheme, but even though there aren’t any individual conversations taking place, new customers are still having to click on and follow external links. This takes a degree of trust.

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Scalability

Referral programs and affiliate programs are both inherently scalable. The best referral programs, especially those that make use of automated software, will scale alongside the number of participants. For companies working in the SaaS industry it is only the company’s capacity for customers that might be the limiting factor.

Affiliate programs can scale in terms of the number of affiliates taking part in the program (with their individual audiences) and also the amount of traffic that each individual affiliate generates. Affiliate software makes it easier to manage and scale affiliate revenue.

Referral vs. Affiliate Program: Which Is Better for My Business

There is often a balance to be struck between referral programs and affiliate programs, and many businesses will find that a combination of both will work well for them. If a straight decision needs to be made then it is often down to the actual purchases that are made. It depends on how often that purchase is made and also the cost of the purchase.

Many affiliate programs work well on individual products such as courses or high ticket items. This is why you often see blogs titled “The best x [product] on the market” with links to one-time, high value purchases. This is because people will read these articles during their research part of the buying process.

Referral programs are successful when targeting purchases that are made both frequently and infrequently. A program such as Uber might be used regularly by the participants and referral rewards can accrue quickly. A referral program from an annual subscription such as insurance, will often work as well especially with the correct incentive offered.

Best for B2C Subscriptions: Referral

B2C subscriptions are prime candidates for referral programs. The users that have a high level of satisfaction with the service being provided are excellent participants in these programs and will often go above and beyond, especially in exchange for incentives such as free months or discounts.

Affiliate programs can often work well too, but without the same level of social proof there are likely to be fewer successful signups. Many affiliates will write pieces comparing different subscriptions on offer, often with affiliate links for each business, increasing the level of competition.

Best for Online Education: Referral and affiliate

Many courses are offered with payment taken on a monthly, annual or one off basis. Referral programs work well for courses without a defined end, such as a language learning course. Affiliate programs have success working with high ticket courses paid for in one go, such as the various eCommerce or marketing courses offered by digital marketing gurus.

Best for B2B SaaS: Referral

B2B SaaS is the perfect fit for referral programs. With regular purchases taking place there are many opportunities for those participating to bring in extra customers and benefit from the incentives offered. Many B2B SaaS companies will offer a program with a tiered incentive position where referrers are able to increase their rewards as they bring in more and more customers.

Best for Financial Services: Referral

When it comes to financial services, people require a very high level of trust before going ahead and making a purchase. The increased social proof and trust included in a referral program make them a perfect candidate for the financial services.

Best for Online Insurance: Referral

Following the same logic as the financial services, online insurance works great with referral programs. Blind affiliate programs will have a far lower degree of success.

Best for Restaurants: Referral and affiliate

Physical referral programs, such as discount codes, will work well for the restaurant industry. That said, with the advent of large platforms such as TripAdvisor and Yelp there is definitely a place for affiliates to make a set commission per booking (for instance) that is made through a link they can provide.

Best for eCommerce: Referral

As mentioned at the start of this article, Amazon is one of the biggest providers of affiliate commissions and there are hundreds of thousands of eCommerce sites that offer similar programs. The vast majority of eCommerce sites will lean towards affiliate marketing, seeing as there is little needed for them to manage but those looking for the greatest levels of growth will run both programs side-by-side.

To keep on the example of Amazon, in order to bolster numbers for their Amazon Prime subscription program, they run a referral program where participants will receive credit when a new member signs up and makes a purchase.

Key Takeaways

There is a place in most marketing strategies for a referral program and an affiliate program. The key is making sure that they work for you rather than creating work for you. Thankfully there are platforms that make the automation of referral programs simple, why not give GrowSurf a try today with a free trial.

Build your customer referral program without the dev time

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