What Is affiliate marketing?
Affiliate marketing is performance-based marketing where you partner with third-party affiliates (promoters). They are usually bloggers and influencers who promote your products in exchange for a commission.
Let’s take an example of the Amazon affiliate program. Here’s a link to a book on Amazon that leads you to the original product page on Amazon as shown in the image below. If a potential customer clicks on the link and proceeds to purchase the product, the affiliate will receive a commission on the purchase.
How does affiliate marketing work?
Let’s say you have an affiliate program. Once affiliates join your affiliate program, they receive a unique link containing a tracking ID. This affiliate link, with the tracking ID, allows you to track and attribute sales to specific affiliates.
On the other hand, affiliates promote specific products and share the link to these products that contain the tracking ID we mentioned above. When potential customers click on your affiliate's link and make a purchase, the affiliates earn a commission.
What is referral marketing?
Referral marketing is a strategy where businesses incentivize existing customers to recommend their products or services to their friends, family, and peers. The existing customers are also rewarded for successful referrals.
Nothing influences people more than a recommendation from a trusted friend. A trusted referral is the holy grail of advertising.
- Mark Zuckerberg, CEO, Meta
How does referral marketing work?
In referral marketing, satisfied customers are encouraged to refer their friends and family members, and when they purchase or subscribe to it, the existing customers are rewarded.
The process is usually made easier with personalized links or codes that are simple and easy to share. Brands use software to create these personalized links or codes, track referrals, and incentivize the advocates.
Take Dropbox’s referral program, for example. It gave users more space for storage for each successful referral.
Affiliate marketing vs referral marketing
Affiliate and referral programs are powerful customer acquisition strategies that leverage the power of personal recommendations and incentives to drive customer acquisition.
While both of the strategies aim to attract new customers, there are certainly differences in the way they work and how they bring about the results. Let’s explore these differences in detail.
|
Affiliate Marketing |
Referral Marketing |
| Promoter |
Affiliate partners or third parties who may or may not be your customers. |
Satisfied existing customers. |
| Channels used by promoters |
All digital marketing platforms, such as blogs, Instagram, Pinterest, YouTube, etc. |
Usually, in-product infrastructure or emails. |
| Incentive |
Monetary incentive. |
Non-monetary incentives like storage space in the case of Dropbox, credits, etc. |
| Example |
A blogger earns a commission for a sale through their unique affiliate link. |
A customer gets a free product or discount for referring a friend who makes a purchase. |
Which one is better for your business?
You might guess the answer would be straight, but it depends. This is because it’s not about choosing one over the other.
Many businesses often use both to maximize their growth potential. They think of it like having two different customer acquisition teams.
Your affiliates reach new audiences at scale, while your customers bring in high-quality leads through personal recommendations.
So, it’s best if you choose to use both strategies as it would allow you to make the most of both strategies.
FreshBooks is a perfect example of this dual strategy:
Their affiliate program offers a commission of up to $200 per sale. The affiliates get paid for every trial signup, as well as every upgrade to a paid plan.
Simultaneously, the Freshbooks referral program gives their customers $100 credits once their friend or family member has been a paying subscriber for at least 60 days.
But if you don’t have the bandwidth or budget to set up both and have to choose only one, here are the pros and cons of both. It should be able to make your decision easier.
Pros and cons of affiliate marketing
Pros:
- Massive reach: More than half (58%) of content creators in the U.S. said they earn money from affiliate commissions. This makes it the second most popular way for creators to make money.
Also, the content creators who act as affiliates usually have a huge following on social media, which helps you reach massive audiences and increase brand awareness.
- Pay only for closed sales: Unlike paid ads, where you pay for clicks or impressions, in affiliate marketing, you only pay a commission when a sale happens.
Cons:
Affiliate fraud risk: Affiliate fraud happens when an affiliate uses tactics to boost their earnings using fake sales. In fact, 17% of leads generated in 2022’s affiliate traffic were fraud. This cost companies approximately $3.4 billion.
Limited control over affiliates: Businesses have limited control over how affiliates promote their products or services.
This can lead to mixed messages about your brand or even harm its reputation if affiliates use aggressive or misleading tactics.
Pros and cons of referral marketing
Pros:
High-quality leads: Referral marketing usually generates high-quality leads as they tap into the trust and credibility people place in recommendations from those they know and trust.
Increased engagement and sales: According to Harvard Business Review, customers who join through a referral make more purchases than customers who join through other methods.
Beyond making more purchases, the referred customers also bring in about 30%-57% more new customers through referrals than other customers.
Cons:
Slower initial growth: Unlike affiliate marketing, you can’t onboard hundreds of referrers. First, you need to build a strong, satisfied customer base before they can start referring others.
Limited reach: While referral marketing is effective in getting new leads, it depends on your current customers. If you have few customers, your reach might be limited.
How to use Mailmodo for this
Mailmodo is an all-in-one email marketing platform that can help you run both your affiliate marketing and referral marketing strategies.
While it doesn’t directly allow you to manage your programs, it can help you in some unique ways. Let’s explore them:
Manage an email list: You can set up and manage an email list of your affiliates and customers who actively refer you to keep them updated on the latest promotion tactics so they can promote your products better.
Onboard effectively: Automated email sequences allow you to seamlessly onboard your customers and your affiliates to the referral or affiliate program.
You can set up an entire sequence where you start by welcoming them in the first email, provide them with more information and resources they’ll need to actively take part in the program in the next email, and then nudge them to take action with more follow-up emails.
Feedback collection with interactive forms: You can send interactive forms within emails to collect feedback from your referrers and affiliates. This would help you improve your programs further and optimize the results you’re getting.
Gamification in emails: You can also gamify the overall experience using interactive widgets like spin-the-wheel. This will make the programs more engaging.
For instance, you can have random rewards on the wheel, which can be rewarded to the referrer. Additionally, you can also have real-time leaderboards for top affiliates inside emails to make it more competitive for affiliates. The AMP functionality allows for this to happen.
Create and send interactive emails without coding in minutes
Takeaways
Both affiliate and referral marketing strategies are directed toward acquiring new customers. And they have the potential to bring great results to your business.
You can either use both the strategies or start with one. Choice is yours but check the pros and cons discussed above to make a wiser decision. It also depends on the immediate goal you to achieve for your business and the kind of budget you have.
