Affiliate programs and referral programs are powerful customer acquisition strategies that tap into your business' word-of-mouth growth potential.
And although affiliate and referral marketing share the same goal of getting referrals through incentives, they target different audiences with different types of rewards.
What's an affiliate program?
An affiliate program is when you leverage third parties (any person or organization) to refer you new customers. The reward is typically a cash payout.
These partners (called affiliates) can be any third party (person or organization, but more commonly individual marketers) that refers you with potential leads. Once leads convert into customers, you would provide the affiliate with a kickback of the revenue made from the sale.
If you want to provide a referral reward based on commission, chances are you want an affiliate program.
Example: You provide 20% sales commission for every lead in a trial period who successfully converts into a paying subscriber. You pay out this commission every month to the affiliate, until the paying user cancels their subscription.
What's a referral program?
A referral program is when you leverage your existing customers/users to refer you new customers. The reward is typically a discount, account credits, or any other incentive that is related to your product/service. Like an affiliate program, the reward can also be cash.
There is a high probability that some of your customers/users are already sharing your product/service with their friends and family. Generally speaking, your customers are typically greater advocates for your business than affiliates, as they are are the warmest connections for your new leads (their friends/family/colleagues), and thus the chance for conversion is higher, and the chance for churn is lower (stickier customers).
When the reward for your referral program hits the motivational sweet spot with your audience, you unlock a highly sustainable, cost-effective acquisition strategy for your business.
Example: Dropbox provides 250MB in free lifetime cloud credits to every new signup that a user refers. The newly signed-up user also receives 250MB.
What's the difference between an affiliate program and referral program?
The simple way to differentiate between a referral program and affiliate program is asking yourself what is the incentive? If the reward is cash, it's most likely an affiliate program.
However, it should be noted that sometimes an affiliate program can be the same as a referral program (e.g, when cash is the reward, your customers also become your affiliates).
Running an affiliate program and referral program requires different resources, and it's not a bad idea to be running both.
At the end of the day, if you have a compelling product/service, there's a good chance you already have some ambassadors who are already sharing or would be willing to share your business, and supercharging those effects could make for some tremendous results.