The 5 Main Differences Between Affiliate and Referral Marketing
Updated: May 21
It is easy to get confused between these two. Today, you’ll learn five of their main critical differences.
What is Referral Marketing?
Referral marketing is useful because it leverages relationships. Marketing is no longer about selling a product to someone. It is all about building and maintaining relationships over the long run. Referral marketing does this well. It encourages customers to connect with their family and friends and share products to earn rewards. This is an effective business marketing method that will give your customers the power to promote your business.
The trick is creating a successful referral campaign. But this can only happen if you know the nature of referral marketing. Referral marketing works by leveraging relationships, it leverages family, friends, and acquaintances. This gives every person who gets in contact with the referral system to promote to anyone they know to earn a reward. Since the products are primarily recommended by people who the target personally knows, the information is often well-received.
What makes referral marketing effective is its generous nature. Unlike other marketing methods that are profit-driven, referral marketing is driven to help people. This is the reason why it is more effective than other marketing methods. Since its goal is to help other people, the audience is often more receptive to it. They know that the referrer has their best interest in mind, so they have a higher likelihood to act on the promotion.
Also, referral marketing is useful because the power of relationship marketing has drastically increased. It is now considered ‘normal’ to search for a review for a product or service before buying. But when someone close to them promotes a product or service, they are far more likely to buy that. The reason is that they are 4x more likely to buy when a friend refers to a product or service. This is data that has been gathered by Nielsen. A company doing an awesome job at referral marketing is hunting bow labs which helps companies to find hunting bows.
Also, these customers seem to have a higher lifetime value. This means that they don’t only make one-time purchases. They also stay and invite others to a brand. This makes them more profitable customers to the business. This is based on the Wall Street Journal.
Another thing that makes referral marketing fascinating is its ability to stop shopping cart abandonment. This is a problem that has plagued many eCommerce website owners. Since referral marketing is based on trust. It has a higher chance of converting visitors into buyers and lower the chance for shopping cart abandonment.
How to Do Referral Marketing
Referral marketing is quite easy to understand. It is a system where you invite customers to give the contact information of their family and friends. You need this so that you can promote your products to them. To create this, you just need a place where your customers can input this information - the referral page. Also, this information should be captured and transferred to a database. From here, you can then distribute your rewards. Fortunately, you don’t have to bother yourself with the coding of these pages. There is a referral software that you can use to set this up with just a few clicks quickly. The key is finding software that is right for your platform. You may run your website on platforms such as Wordpress, Shopify, and BigCommerce. You should look for a compatible app for your desired platform.
But it doesn’t stop there. Choosing your software is only the first part of the process. You also need to refine the content of your referral program by selecting your rewards and who to reward. Referral programs can have different rewards. You can give out cash rewards and discount codes. Or you can go to the creative route and choose to give away free products or free versions of your products. What you should choose will depend on the nature of your business, so you may want to step back and study your market before you create your referral program.
Why Does It Work?
Referral marketing works because its cornerstone is altruism. This is the act of helping another through the honest recommendation of a product or service. Referral marketing is more than just a reward-based program. It is also a system to increase a brand’s network reach. It works because its core referrers are happy customers. Since they are satisfied with a product or service, they are pleased to recommend it to their family and friends. This enthusiasm is usually enough to motivate their family and friends to also buy from your brand. This is because they have a story. This acts as proof that your product or service works for them.
Also, referral marketing works through incremental promotions. As one person visits your site and buys from you, he can also promote 2 to 3 people to your website. This means that as you develop your brand through referral marketing, you also get more people who can support you. It works on an incremental level. This means that as more people join your program, the chances of promotion are higher.
How Much Does Referral Marketing Cost?
Now that you have seen the value of referral marketing, you are probably wondering about its cost. Well, the good news is that it is not that expensive. However, the results will not be as direct. Compared to paid ads where you can directly measure ROI through ad spend and profits, referral marketing has more value than mere revenue. The system can drive new people to your site and help them become loyal ambassadors to your brand. This means that you gain more than a customer or a sale. You also learn a new referrer for your business.
What to Look for in Referral Marketing Software
There are now many options in the market. The key is finding the software that will support your marketing goals. First, you should look for software that can support your brand. This means that the referral pages need to be customizable. Also, there should be a built-in analytics system. This will help you track the ROI of your campaigns in terms of metrics such as traffic and sales. This will give you a clear picture of how well your referrers are performing and may give you some clues on how you can improve.
Third, you should consider security. Remember that referral campaigns always ask for the contact information of customers. It is best to keep this data secure for you don’t want to face data privacy issues associated with your clients later on.
What is Affiliate Marketing?
Affiliate marketing is quite similar to referral marketing. This is the reason why people always confuse these two. Well, they are both based on relationship building but with entirely different goals. Referral marketing is done for honest product recommendations with altruism as the goal. But affiliate marketing is based on promotions driven by profit.
You will understand the difference of affiliate marketing from referral marketing through the main actor. In referral marketing, there is the referrer. This can be a website visitor or an existing customer. The role of the referrer is to promote the brand. His goal is the reward that comes afterward, along with the fact that he loves the brand’s products or services. In affiliate marketing, the actor is often a marketer. This is a person who is looking for products that they can promote in exchange for a commission. These people know how to promote products, but they don’t want to go through the trouble of building one from scratch. Because of this, they look for existing products that they can promote.
Also, affiliates can be hired. You can look for people who will drive new clients to your site, and you can pay them for every client that they have successfully referred. If you are having trouble finding affiliates for your website, you can always list your products or service in an affiliate network. Marketers flock to this place to find new products to promote.
How to Do Affiliate Marketing
You can only launch an affiliate program once you understand how it works. An affiliate is a person who will promote your products and services for you. In return, you should give them a cut of your profits. This means that you give them a certain percentage for every customer that they manage to refer to you.
Keeping this in mind, you should then create an affiliate page. Some marketers call this as a JV or joint venture page. This is because you will be leveraging the marketing skills of other people to promote your product.
On this page, you need a section where they can sign up. They need to have a user account so that you can track their referrals and grant them commissions. Affiliate software can help you to do this automatically. This way, you can open your program for sign-ups and pay all of your commissions in a single click.
When you choose to do this, it is important that you want software that is compatible with your platform. For example, a Wordpress eCommerce website like Best Drums Set Labs will need a WooCommerce affiliate plugin to do this successfully. Compatibility is everything.
Why Does It Work
Affiliate marketing programs have been around ten years ago. The reason why it continues to exist is the fact that it works. Product creators can use the marketing expertise of others to promote their products. Affiliate marketing allows them to do that. It will enable them to give their referrers some monetary incentives so that they are motivated to promote the brand’s products and services.
How Much Does Affiliate Marketing Cost?
Aside from the cost of the software, affiliate marketing doesn’t cost that much. Although some affiliate software may charge you based on the number of affiliates or your traffic, it is still a worthy investment. This is because you are setting up your business for relationship marketing. With an affiliate program, you have a system where you can invite marketers to promote your products for you.
What to Look for in Affiliate Marketing Software
An affiliate marketing software is pretty straightforward. You’ll know that it will allow you to create a sign-up section and dedicated affiliate pages. In these pages is a dashboard where affiliates can see their performance. Here, they will have an idea of the commission that you own them.
Similarly, you will also have your dashboard. In this area, you will be able to keep track of all the affiliates that signed up and how well they are performing. There should also be a payment option where you can send payments with a single click. You need to inform your affiliates that you only release payouts on certain days. You can set up a monthly schedule so that you don’t have to do this consistently.
Another feature that will make an affiliate software enjoyable is a contest feature. Contests are quite common in product launches, and it encourages marketers to promote products more because of the extra rewards. It is a nice bonus on top of the regular reward that you get out of referral programs or commissions from regular affiliate programs. You can also announce this in joint venture forums so that you can attract more marketers.
What Form of Marketing is Best for Your Business?
The right form of marketing method depends on the nature of your business. You’ll need to take a closer look at the behavior of your target market to determine their desired approach. You can also experiment with the two methods. You can try one to see how your audience will react and change if it is doesn’t give you your desired results. When you choose to implement one of these methods, you have to ensure that you are also doing your share of promotion activities. You cannot create them and pray that people sign up. You should also be active in recruiting new referrers or affiliates.
It doesn’t matter what route you choose. What matters is what marketing method will be more useful for your business. You’ll want your business to thrive, and selecting the best way to do that will always be the best route to take.
About the author
Arlen Robinson is the co-founder and VP of Business Development at OSI Affiliate Software.
He is also the host of The Ecommerce Marketing Podcast where he discusses marketing strategies with experts from all over the world.