Referral Marketing vs Affiliate Marketing: Here's What You Need to Know

Referral marketing vs affiliate marketing. These are two often-confused terms in the world of online marketing.

Though they are similar in some ways, they are significantly different in others.

Popular industries for affiliate marketing programs include software tools like writing software, SEO tools, and others. The fashion industry, a B2C industry, reportedly gets a ton of traffic from affiliates.

You'll find that many health, wellness, fitness, and apparel brands use micro-influencers on social media platforms like Instagram and YouTube. Many brands work with influencers as part of their affiliate marketing efforts.

It's worth mentioning that micro-influencers are those with 10,000 to 100,000 followers and have a strong connection with their audience. Meanwhile, nano-influencers are those with less than 10,000 followers. Either type of influencer can have a niche and a community. (UpgradedPoints)

A business can have both a referral marketing program and an affiliate program. But how and when it uses each is a different story.

In this guide, we'll talk about the differences between referral marketing and affiliate marketing and which suits your business more. We'll also provide you with tips for a successful referral program.

What is referral marketing?

Referral marketing, also called word-of-mouth marketing and ambassador marketing, involves getting current customers to tell friends and family about you.

But it's not just telling. Referral marketing is both reliable and measurable. Reliable because people trust each other and measurable because you'd be using referral marketing software or a referral program.

The referral program helps you see which customers have referred them to others and which of these new referrals have subscribed or registered to your platform.

Put simply, referral marketing programs are a great and inexpensive way to expand your customer base.

What is affiliate marketing?

As for affiliate marketing, while it also involves telling others about a business, there's more to it.

Having or using an affiliate marketing program involves paying others for getting people to subscribe to your business. People who conduct affiliate marketing on behalf of a company are called affiliates.

These affiliates can be influencers, bloggers, or other companies.

When considering whether you want to use referral marketing or affiliate marketing, it's important to note the main distinction between the two. That is, affiliate marketing pays its affiliates.

Referral marketing vs affiliate marketing: What are the differences?

While both referral marketing and affiliate marketing involve people telling others about a brand or business, there are several distinctions worth mentioning.

Let's look at those differences:

1. Referrals vs affiliates: Who is doing the referring?

When it comes to referral marketing vs affiliate marketing, the person in charge of telling others is an entirely different persona.

In referral marketing, the referrer, the person referring your business to others, is someone who has tried your store or products and liked them and wants to tell others about it.

Look at it like this:

Jennifer tried your coffee shop and enjoyed her beverage and experience. She goes and tells her mom and her friends Alice and Mary about it.

'By the way, Coffee ShopX has this referral program, if you sign up, you get a free small coffee and I get points! It's a win-win!' Jennifer tells her friends.

When Mary and Alice sign up via your mobile app or website, they each get the promised small free coffee and Jennifer gets points or a small free coffee of her own (depending on the reward you set up).

On the other hand, in affiliate marketing, it's unlikely that the person telling others about your business knows these people.

In most cases, the affiliate has a website set up and creates a promotional campaign to get people to visit your site or store.

Think of the affiliate as an off-the-clock salesperson. If they get people to sign up, they get a commission. If they just get you traffic, they don't get anything.

You'll often find that affiliates work with high-ticket and subscription-based businesses.

For example, my keyword research tool KW Finder doesn't have a referral program. They have an affiliate program. If someone goes to their site and signs up for one of their plans, I get a commission.  

What this means is that for someone to refer another, the referrer needs to be a customer for the brand. On the other hand, with affiliate marketing, the affiliate doesn't have to be a customer.

However, they should have an audience that's similar to your target audience, otherwise you'll get unqualified leads who may subscribe and leave before their trial period is over or just leave and become traffic to your store.

2. Referrals vs affiliates: Tracking

The way businesses track referrers' and affiliates' efforts and 'sales,' is using a link. Each link includes a code that indicates how many times it's been used.

With referral marketing, there's a referral link with an embedded referral code, while with affiliate marketing, there's an affiliate link with an affiliate code.

The links act the same way, indicating how many times the embedded code was used and how many subscriptions it resulted in.

Let's go back to Jennifer's coffee experience.

When she invited her friends Mary and Alice, she sent each of them her referral code. When they signed up, they entered that code in a designated box at sign-up.

That way, you, the coffee shop owner, were able to see who Jennifer referred and reward her accordingly.

On the other hand, if you were running an affiliate program for your software, and Jennifer got you two new subscribers, she would get a commission for each person who subscribed.

Often businesses with affiliate programs specify that the affiliate would only get their commission after a specific amount of time. This is to ensure that whoever subscribed using the affiliate link doesn't opt-out and request a refund. In this case, the affiliate doesn't receive anything.

3. Referrals vs affiliates: Promotion method

When it comes to promoting your products and services, referral marketing and affiliate marketing offer their own differences.

With referral marketing, the process may be slow but it's cozy, friendly, personal, and smooth. And the referrals you get are targeted because people share with interested friends and family.

With affiliate marketing, there's a bigger effort on the affiliate's part. How they choose to promote your business varies.

Some will write a blog post or product review with an affiliate link to your business. Others may prefer creating an email blast, an Instagram post, or another form of social media marketing.

A 2020 survey by Awin found that nearly blog content generates nearly 40% of affiliate publisher commissions in the United States. AWIN is a global affiliate marketing network with over 15,000 advertisers and 100,000 publishers.

4. Referrals vs affiliates: Reward process

How each person is rewarded is another important distinction when understanding referral marketing vs affiliate marketing.

With referral marketing, businesses have referral programs and often reward their customers with points, free products, a discount voucher, free shipping or something else.

With affiliate marketing, the affiliate gets a fixed commission or a percentage of the money paid by the customer who subscribed via their link.

5. Referrals vs affiliates: Trustworthiness

An major element that we must talk about when discussing referral marketing vs affiliate marketing is trustworthiness.

Referral marketing is a kind of social proof, where a customer refers people they know to your business. In other words, referrals are personal. And referrers are like brand ambassadors, they have good things to say about you.

With the coffee shop example, there's a big chance that both Mary and Alice will sign up because their friend Jennifer was the person who told them how great your coffee is. The recommendation comes from someone they know and trust.

On the other hand, an affiliate will get you both, qualified subscribers, who are their followers, and some subscribers they've never engaged with or met. This is usually because of the way the business was advertised.

The affiliate may have written a blog post with a referral link, created an ad campaign – although some brands like SEO tool Mangools forbid that – or created a series of social media posts promoting your brand.

Whoever comes across these, clicks the affiliate link, and completes a purchase results in a commission for the affiliate.

An example of referral marketing vs affiliate marketing

Now that you understand the main differences between the two types of marketing, let's take a quick example.

If you look at Gameball, we provide software to help e-commerce and other online businesses grow through referral marketing.

We've had customers from non e-commerce industries such as online courses and others use our referral programs creatively to grow their customer base.

If you have an online store, you can add Gameball as a referral marketing app and use to get customers to refer you and to track referrals and growth.

On the other hand, if you're a blogger, influencer, a Shopify expert, or an agency who would like to market Gameball, then you'd best join Gameball's partnership and affiliate program, where you get a fixed fee for every referred business.

Referral marketing vs affiliate marketing: Which is right for you?

Now that you know the differences between referral and affiliate marketing, how can you decide which is the right fit for your business?

If you have an e-commerce business or a physical store be it a restaurant, café, beauty parlor, cosmetics store, or something similar, a referral program would be the first and easiest step to start.

All of the above industries work well with loyalty and referral programs, just to name a few.

Referral marketing programs are cheaper and translate into quality referrals.

Deciding to use an affiliate program, on the other hand, is often associated with software and subscription-based businesses.

It requires setting up policies such as payment terms and methods, among others. You'll also need a landing page. You'll have to run marketing campaigns to get potential affiliates interested so they can send people your way.

Depending on the size of your business and the value of your product, you may have to validate potential affiliates.

However, it's worth noting that if you choose to launch an affiliate program, you should be aware that it's not going to work like magic. You should also remember that there is payment involved. Affiliates will get a commission for driving people to your business.

If your commission isn't satisfactory, they may not choose to work with you.

Referral marketing tips with Gameball

If you're looking for a few referral marketing best practices, ideas, and tips, then you've come to the right place because Gameball offers referral software for e-commerce and other online businesses.

Referral marketing tip 1: Rewards for all

At Gameball, we highly recommend that you reward both sides of the referral program, that is the referrer (your current customer who referred their friend), and the referral (the friend).

That way your referral program is enticing and a win-win. It also gives the referral a reason to refer their friends and family as soon as they join.

Referral marketing tip 2: Explain how it works

Want your referral program to be successful? Tell customers how it works. This doesn't need to be a loooong page with lots of legalese writing.

A simple explanatory page can go a long way.

With Gameball, there are several ways you can reward customers for referring friends, family, and others in their network.

These are:

• rewarding the referral (the new subscriber)
• rewarding the referrer
• rewarding the referrer and the person they referred

What do we recommend? Option 3. Reward the person who helped you grow your customer base and the newcomer. The reward could be a first-time use voucher, first-order shipping, points or something else.

If you're a coffee shop, what better way to entice customers than with a hot cup of your glorious coffee. Imagine how new referral Alice would feel when she picks her free hot cup of coffee on her way to work.

Great experience? Check. Magic potion to awaken the brain? Check :)

Referral marketing tip 3: Set referral goals

Make sure your referral program is different by setting up referral goals.

If your customer can refer 5 people, they'd get a better reward than they would referring 2 people.

Referral goals motivate and incentivize customers to refer more people.

Referral marketing tip 4: Make it easy to share

If a customer finds it hard to do something, it's unlikely they will pursue it. Even if they enjoyed their initial experience with you.

Make sure that your referral links or referral codes are easy to share. If you're using Gameball, new customers will get an auto-generated referral code and link for them to use.

And since people love experiences, data shows that offering customers a memorable and positive experience is a great way to get them to refer you.

Wrapping it up

By now you should be clear on the main differences of referral marketing vs affiliate marketing, what drives them, and the value and benefits you get from each of them.

Referral marketing programs are gaining popularity among e-commerce businesses, restaurants, coffee shops, and similar segments.

Why? Because one of the top benefits of using referral programs is that they can help build customer retention. People refer friends and family based on their shared interests.

If Jennifer, from the example above, knew that her friends weren't coffee fans, she wouldn't have shared her referral code with them. She'd have found someone else.

If you'd like to see the power of referral marketing programs first hand, then subscribe to Gameball. If you have a Shopify store, then install the Gameball app directly into your store.