10 Main Differences Between Affiliate Marketing and Referral Marketing

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Arlen Robinson

Senior editor

Parul Saxena

Chief editor

Last updated: May 21, 2021

Two types of marketing are often interchanged. This is affiliate marketing and referral marketing. One can get confused between the two because they work in the same way. They utilize the power of people to refer other people to the business.

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The best element of marketing is word of mouth. This is because it leverages the relationship between the person and the people they have close relations with. Close relationships are there because of trust. This trust is a good driving factor for encouraging action, particularly the act of buying.

If you are planning to implement one or both, it is important to know the difference between the two. In this article, you’ll learn 10 main differences between affiliate marketing and referral marketing.

What is Affiliate Marketing?

Referral Marketing

Before you proceed to the differences, you need to understand what they mean. This section is for those people who are entirely new to the term. 

Affiliate marketing is a system where you allow other people to -promote your products and services. They can promote your site with a dedicated affiliate ID. Then, they get a cut of the payment when they manage to sell it successfully. 

Creating your affiliate program is not that hard. You need an affiliate software, and you can easily set up one. 

What is Referral Marketing?

Referral marketing, on the other hand, is a system where you ask for the contact information of the family and friends of prospects in exchange for a reward. You can do this with referral software. This will automatically generate a referral form for your prospects.

Referral marketing gives your customers a chance to promote you to the people who are closest to them. It works because it utilizes close relationships and uses that for promotion.

Now that you understand the terms let us proceed with the comparison. Here are the 10 main differences between affiliate and referral marketing. 

Below are the  Differences Between Affiliate Marketing and Referral Marketing

 1. Referrer

The referrer is different for affiliate marketing and referral marketing. 

In referral marketing, the referrer can be anyone. It can be a customer, but it can also be a website visitor, or a subscriber. It can be anyone that can refer new people to the website. As long as it is a person who is interested in the reward, he or she can promote the business through referral marketing. The motivation is often the reward, or it can be a recommendation because they like the product or service. 

In affiliate marketing, it is different. The referrer is often a marketer. This is usually a person who knows how to promote a website. The reward in affiliate marketing is often a fixed commission. Motivation is mostly financial. 

2. Target Market

Similarly, the target market for the affiliate and referral marketing is different. 

The target market for referral marketing is often a close family member or a friend. This is usually a person who the referrer has a close relationship with. This relationship is what makes referral marketing so effective. Trust is a vital factor in marketing. The more a person likes and trusts you, the higher their likelihood to act. Referral marketing is useful because it leverages these relationships. It takes every customer or website visitor as a referrer and allows them to promote a product or service to family members and friends. 

The target market for affiliate marketing is anyone. This can have a close relationship with the referrer, or it can be a stranger. The power of affiliate marketing depends on the capability of the referrer to promote your website. They can use just about any means. They can promote the site through word of mouth, and they can also promote your business through digital marketing methods. Some of the most popular digital marketing methods for affiliate marketing are search engine optimization and social media marketing. 

3. Level of Relationship

There is a difference in the level of relationship between the referrer and the referral. 

In referral marketing, there is a close relationship between the referral and the referrer. This can be a friendship or a familial relationship. As mentioned, referral marketing is so effective because it leverages the close ties between people. These relationships result in higher responses. This often translates to more traffic and sales for any business.

In affiliate marketing, the relationship doesn’t have to be close. While affiliate marketing can work on people who you have a close relationship with, this is not necessary. In referral marketing, you are required to give the contact information of the people that you know. But you don’t need to do that in affiliate marketing. You need to send traffic to the landing page and hope it converts. With this, a close relationship is not necessary for you don’t need access to their contact information. 

4. Marketing Channel

Another difference between affiliate and referral marketing is the marketing channel.

In referral marketing, the channel is often through word of mouth. This is done by asking family and friends if they are interested in the products or services that they are currently using. Usually, email and mobile marketing are not required. Word of mouth marketing is often enough. If you have to use another form of referral marketing, the best way is through social media. This is where you share your code and your positive experience about a product or service. 

In affiliate marketing, on the other hand, different digital marketing methods can be used. You can use search engine optimization to get ranked for long-tail keywords, or you can use social media marketing to attract traffic to your website. You can also integrate affiliate products into your content or send an email to your subscribers about a product that you love.  

5. Types of Reward

Another notable difference between referral and affiliate marketing is the types of reward. 

In referral marketing, you have different rewards to choose from. You can give away a discount code, cash, or a free item. The type of reward will depend on the preferences of your target market. It is crucial to take a step back and look at what your prospects are buying before you offer them any reward.

In affiliate marketing, you only have one type of reward. This is cash. In fact, it is called a commission. This is the amount that the marketer earns for every sale. Usually, it is a percentage of the product’s full price. But, it is still distributed as cash.

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6. Customer Lifetime Value

Referral Marketing

Another thing that you have to consider is the customer’s lifetime value. This is the likelihood that a customer will return to your site. 

Referral marketing usually has a high customer lifetime value. The is because the referrer who recruited them are already users of the website. The close relationship between the referrer and the referral partner results in customer loyalty. This is even higher if the products and services of the brand are worth commending. 

Affiliate marketing, on the other hand, may not necessarily result in customers with high lifetime value. Often, the goal of the referrer is to get as many sales as they can. This can be a one-time sale, or it can be a loyal customer. In any case, the referrer often gets paid on the first sale. So they often don’t care about the sale after that. 

7. Application to E-commerce

From here, let’s look at the application of different marketing methods in various industries. First, there’s e-commerce. These are your online stores that are usually hosted in Shopify, BigCommerce, or WordPress (WooCommerce). Here’s how each form of marketing works for each. 

Having a referral program for e-commerce is ideal. This is what Best Hunting Bow Labs did, and it succeeded. This is because every customer can refer family and friends to the website. Plus, you can set up a program by giving a simple discount code for your products and services. You don’t even need to give away a complicated reward.

Similarly, an affiliate program can work, as well. This will allow people to promote your products. In exchange for a commission, they can promote your products for you. It works for e-commerce as well. It is recommended that you both have an affiliate and referral program. 

8. Application to Services

Another industry that you can look into is services. This requires a different approach.

Referral marketing is perfect for services. This is what Uber and Airbnb used to grow their business. Uber and Airbnb are service apps. They focus less on acquiring assets and more on administering services. Since they are considered service businesses, they ensure that everyone who uses their service is happy. From here, they ask for referrals. They ask the prospect if they know someone who can use their services.

Affiliate marketing can also work, but it may not be as effective as referral marketing. While there may be some people who would be interested in earning a commission for every sale, there can be some complications in the delivery of services. There is a question on when the affiliate gets paid. Do they get paid when they successfully refer someone or dore they get paid when the service is done and completed? All of these can make the process all too complicated for a service business.

9. Application to B2B

B2B stands for business to business. These are businesses whose customers are other businesses. An excellent example of this is AppSumo. It is a business that offers deals on online tools for companies. It is important to consider whether you’ll have a referral or affiliate program for this type of business. 

Referral marketing is useful for B2B, for it will help you connect with new businesses. Instead of just family and friends, you can also ask for referrals from their connections in the industry. Every company has a set of suppliers and other stakeholders. You can ask them to refer you to their business owner friends. 

Affiliate marketing, on the other hand, does not work that well for B2B. The primary goal of businesses is to refer to services or products that have worked for them. But they are hardly interested in financial gains. Because of this, affiliate marketing is not a good match for B2B. 

10. Application to Digital Products

A new but popular form of business is the digital product business. Products can come in the form of a downloadable or viewable file like an ebook or an e-course. These products are usually sent via email and are sent right after the customer’s purchase.

Referral marketing can be used for digital product marketing.  You can ask your existing customers, subscribers, and website visitors if they know anyone who will be interested in your products and services. From here, you can ask them to fill out an online form with the contact information of their friends. You can easily set this up with referral marketing software.  

However, affiliate marketing is the best way to promote digital products. Since these products offer knowledge, they can quickly be promoted to other people. This is the reason why an affiliate network for digital products like Clickbank is born. It is the industry that works so well with affiliate marketing. 

What Form of Marketing Suits Your Business?

Now that you have seen the difference between the two, it is time that you choose the best form of marketing for your business. By now, you should have a deeper understanding of the processes and the actors at play for each. You should also know the industries that they work well with. 

It is best that you do these things. First, define your industry. You should know this based on the customers that you serve and the products that you sell. Second, you should look at the nature of your customers. Are they likely to promote you for your products, or are they more likely to refer you to their family and friends? If the focus is on products, affiliate marketing is better. If the focus is on people, referral marketing is better. 

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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.

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2 COMMENTS

  1. Hi, there
    Awesome write up
    Very informative and stunning post on ” 10 Main Differences Between Affiliate Marketing and Referral Marketing”
    Thanks for sharing..

  2. I’ve found this information very helpful as many people can get help from your blog. I really appreciate your research and blog.

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