We take a look at the similarities and differences between affiliate marketing and referral marketing and which is right for your business.
When people hear the words affiliate marketing and referral marketing, most of the time they mistake them for the same thing because they are very similar. We take a look at the similarities and differences so you can decide whether they are right for your business.
- They will both result in sales on your website
- They both use reward to encourage people to recommend them - one uses customer loyalty, and the other relies on paying commissions on sales to different websites to reach a large audience who might be interested in your products.
- They can both use promotions and offers as an incentive to get someone to buy. An influencer affiliate could offer a coupon code to their visitors, and a referral program gives the referrer and the person being referred a set amount off their next purchase.
- Both can give you a strong return on investment.
What is affiliate marketing and how does it work?
Affiliate marketing is when a website refers a customer to your website, who goes on to make a purchase. As an advertiser you pay a commission on that sale. This can either be a percentage of the total sale amount, a set amount per sale, or a set price per click depending on your business and what you’re looking for. Most advertisers use an affiliate network to do this because of the tracking and reporting available to you.
Three key benefits of affiliate marketing
- Affiliate marketing is a good way to reach a wider audience
- You can work with bloggers and influencers to increase your sales
- You only pay commissions when you make sales
What is referral marketing?
Referral marketing is when someone personally makes a recommendation and refers you to a product or brand that they love. How many times have you seen a brand encouraging you to share a code with your friends giving them a discount, and rewarding you for getting them to try it out? This is exactly what referral marketing is.
Three key benefits of referral marketing
- People trust their friends and family more and are more likely to convert
- They can be a great way to spread the word about your brand and encourage people to try you out
- It can reduce your marketing expenses
What are the key differences?
So you can figure out a strategy for your businesses, here are the key differences between the two.
Personalisation: The key difference here is that with referral marketing, it is a way of a brand rewarding a current customer by getting them to tell someone they know about the brand or product. WIth affiliate marketing, the person advertising doesn’t know the people they are referring your product or brand to.
That said, a lot of affiliates (especially influencers) work with brands that they love, and they craft their message so it is more personalised to their audience.
You reach a wider audience with affiliate marketing: Because an affiliate network has a pool of publishers who can apply to promote your brand on their website, you can reach a wider audience that you might not normally reach. There are so many different types of affiliates from influencers, to tech solutions, or loyalty websites. The scope for finding a new audience is huge.
With referral marketing, there is usually a limit to the amount of people an individual can reach, because they are only telling people they know and their associates, and not everyone is motivated by a referral program.
Engagement: With a referral, because it’s more personalised, the likelihood someone will go through to buy is higher, because they know the person who is referring them. That being said, influencers can have a high conversion rate as well because people feel like they know them and are more engaged with their product placement.
Conversion rates are different: Because the methods are so different with affiliate and referral marketing, it’s like comparing an egg to a pancake. With affiliate marketing because of the high amount of traffic that is coming through to your website, the conversion rate will be lower. With referral marketing, because they are already a strong prospect and are coming to your site with more intent, the conversion rate is higher.
Which should you use for your business?
Choosing which to pick for your business depends on your goals. If you’re looking to build up slowly, then you might want to think about starting with referral marketing and building up to affiliate marketing, or if you want to scale more quickly then using affiliate marketing or a combination of both could work more in your favour.
It all really depends on your business goals and what you’re comfortable with, and you need to make sure that you think about a few things before you start:
Your margin: The first thing to think about is what margin you have and what you can afford. There are costs to both of them, and you need to figure out whether you can sustain it.
How much time you have: If you don’t have a lot of time to spare, then referral marketing might be better for you, as an affiliate program needs some time and some love in order to grow.
What your product is: If you’re selling clothes, then both referral and affiliate marketing could work for you. If you sell something B2B, then the appeal is less wide with affiliate and you should focus your efforts on referrals.
Your marketing team: For an affiliate marketing program you’ll need banners and a logo so that affiliates can use them when they need to. For a referral program, it can be more complex and require more attention. Both need some work from your marketing team to get it to grow.
Choosing to work with both an affiliate and a referral program gives you the best of both worlds, but if you’re pressed for time, or want to find out which is more effective for your business then it is better to pick one to start with, and then move on to the other. Whatever you decide, make sure you take into consideration the points above, so that you choose the correct marketing for your business.