Many online marketers actually don’t know the difference between affiliate programs and referral programs. In fact, most will think that both of these are the same. However, they couldn’t be any further from the truth. There is a huge difference between an affiliate program and a referral program. Knowing the key differences between these two can help a business owner decide on which program they should use for their offers in order to grow their business.
The main difference between an affiliate program and a referral program is that an affiliate program is a where the referred leads come from someone the affiliate do not know and as for a referral program, the lead will come from someone they know personally (word of mouth to friends and family).
By knowing the difference here you will know that there should be a difference in the structure and the compensation as well.
Let us first look at the difference in structure of these two systems.
You see, for affiliate programs, your affiliates are mainly website owners or traffic brokers who have existing traffic that is interested in your offer. So these affiliates place a link on their website and direct traffic to your offer. If someone who uses their link to arrive on your offer and then buys the offer your affiliate gets paid. And this is usually done automatically because of the use of modern technology that tracks the cookies of the visitors. Even the crediting of the sale is also done automatically.
A referral program’s referrer however, is normally your own existing customers. Usually they are not webmasters or anyone who can bring in a lot of traffic. They are compensated if they would recommend your offer to someone they know personally. The main strategy here is to promote customer satisfaction via good quality and services so that your customers will start referring your offers around. The compensation is to encourage them to try harder to get you the lead.
The compensation model is usually an agreed percentage based on the sales. It could differ greatly from the first 10 customer referred compared to the 1000th customer. The affiliates can be compensated with other bonus incentives as well or prize if they could reach a certain amount of sales per month. In order words, the compensation model for an affiliate program can be very complicated, but it is definitely very flexible as merchants usually would love to encourage their best affiliates to try harder to grow their business.
The compensation model used in a referral program is quite simple when compared to the model used in an affiliate program. Usually is in in terms of cash or a bonus reward. No fancy tricks. Just a simple send me a customer and you get a discount on future purchases or some cash reward.
Relationship with ‘Referred’ Customers
The relationship of an affiliate with their referred customer is basically none. They do not know personally who their referred persons are, and they send traffic based on demographics. Hence the chance of conversion from a lead to a paying customer is much lower.
In a referral program, the referred usually have a strong relationship with the person they refer it to. They will try their best to explain your product with enthusiasm. This usually results in a much higher conversion rate. The only problem is that referral programs usually do not bring in as much traffic as an affiliate could and affiliates can usually bring in much more profit than a referrer could.
When it comes to making an agreement with affiliates, you will need to be more careful as it is a two way link where it benefits both parties. You need your affiliates to perform as much as your affiliates need you to convert the traffic that they send to you. Plus, the agreements need to meet the FTC rules when it comes to affiliate programs.
However, with referral programs, everything is kept as simple as possible. As long as they refer a customer, they get compensated. There is no need for any special agreements.