Two popular promotional tactics that businesses use to market themselves are referral programs and affiliate programs. Knowing their pros and cons and how they differ can help you make the right choice for your company.

What Is Referral Marketing?

A referral program relies on your existing customers, who refer your products or services to their friends and family. In exchange for a successful referral that converts, you provide them with a reward such as a discount on a future purchase, cashback, or a free gift. And the person who receives the referral also benefits — getting something extra with their first purchase, for example. 

This provides incentives all around, enticing your customers to make the referrals and encouraging the recipients to buy something as well. 

Referral systems can help motivate customers to return to you again and again, especially if the reward is a deep discount on a future purchase. You can remind them about your business and prove that you care about them. This type of program is also an easy way to increase awareness about your brand with the help of satisfied customers who have good things to say when they refer others to your website. 

What Is Affiliate Marketing?

Affiliate marketing takes advantage of affiliates, such as popular influencers in your industry, who work on sharing information about your business. They might post links to your online shop on their website, talk about your products or services in blog posts and videos, and let their audience know about your brand on social media. 

Affiliates receive a commission anytime they refer a customer who clicks their affiliate link or uses a unique code that results in a purchase. The tracking code provided by the affiliate may also double as a discount code for the customer. 

Is affiliate marketing legit? Absolutely! When it’s effective, it works out for everyone involved because your business is promoted, your customer base increases, and your affiliates generate some income for themselves. 

Referral Programs vs. Affiliate Programs

Now that we’ve covered the basics, you can already see some similarities and differences between selling through affiliates and selling through referrals. But let’s dive a little deeper into what these marketing options have to offer. 

Similarities Between Referral Marketing and Affiliate Marketing

  • The goals of both an affiliate program and a referral program include: increasing brand awareness, boosting traffic to your website, and inspiring more people to make a purchase. 
  • Each of these marketing options can be a cost-effective way to promote your business. With the right tools in place, such as an affiliate dashboard and creative inventory, you can get great results. 
  • With both a referral program and an affiliate program, you rely on a form of word of mouth to promote your business. An element of trust also comes into play. With referral marketing, you hope customers will be excited enough to talk about your business with the people in their networks. Affiliates use their influence to reach a wide audience that trusts and values their opinions about various products and services.
  • Affiliates share special links that provide tracking data to let you know how many visitors arrived at your site as a result of a particular affiliate’s efforts. Similarly, a referral program can utilize customized links that allow you to easily track which customers provided referrals that converted.

Differences Between Referral Marketing and Affiliate Marketing

  • Referrals are an excellent way to reward existing customers and show that you appreciate them, while an affiliate program reaches people who aren’t yet customers. Once you generate leads and conversions from an affiliate program, you can then utilize your referral system to further reward new buyers. 
  • Running a referral program might be a bit easier overall because you can get started with tools you already have, such as email lists. On the other hand, it’s wise to ensure your affiliate program is running optimally with the highest quality tools for recruiting, managing and tracking affiliates. Connecting with talented and influential affiliates can also take time, and not all affiliates may work out in the long run. 
  • With a referral system, you can use your website, email list, and social media to promote rewards to customers who refer others to your business. But with an affiliate program, you’re relying on influencers’ websites, email lists, and social media accounts to generate interest and leads on your behalf. 
  • Affiliates are motivated to share information about your brand and provide links to your website because they want to make a commission on sales that are completed as a result of their efforts. Or they might be interested in getting free products that they can test out and review online with an affiliate link. However, referrals are motivated mainly by whatever incentive you give them for making a referral that converts, whether that’s a free gift or a coupon code. 
  • While referrers have already bought from your business, affiliates may or may not have purchased in the past. In other words, an affiliate might be promoting your product or service even if they haven’t personally bought anything from you. 

Are You Ready To Take Advantage of an Affiliate or Referral Program?

There are many great reasons to use affiliate and referral programs to promote your business, boost the number of people who are interested in your brand and increase sales on your website. Whether you opt to use one or both of these approaches is entirely up to you. 

To help ensure your success in either of these areas, be sure to implement the right tools and software before you get started. By doing so, you’ll be able to accurately gauge how successful your program is and whether you’re getting a solid return on your investment. 

If you’re ready to launch an affiliate program, LeadDyno is here to provide you with a dashboard that will simplify managing and tracking affiliates and their progress over time. This will allow you to easily implement changes whenever necessary to make the most of this promotional strategy and continue growing your SaaS or e-commerce business.