Affiliate Marketing vs. Referral Marketing: What’s Right for You?

Choosing the right marketing approach for your business may seem daunting. Two options that often create confusion are affiliate marketing and referral marketing. While they may seem similar at first glance, there are crucial differences that you should be aware of. 

In this article, we'll distill these differences and help you decide on the best fit for your business.

What is affiliate marketing?

Affiliate marketing is a strategy where businesses partner with external parties — often bloggers, influencers, or other businesses — to promote the brand’s products or services. These affiliates receive a commission when their promotional efforts result in a sale. 

This approach can be implemented effectively using various tactics, including embedding referral links on webpages, disseminating exclusive discount coupons, and more. Businesses often incentivise their affiliates by providing premium commissions, special discounts, or access to unique deals for successful referrals, creating a mutually beneficial scenario where affiliates benefit from promoting high-quality products and services, and companies gain cost-effective marketing via renowned influencers.

According to Zippia, the United States alone has approximately 11,400 affiliate schemes, which indicates the popularity and potential of this marketing avenue.

Key differences between affiliate and referral marketing

You might think that they’re similar, but referral and affiliate marketing are two very different channels. These are the main differences:

Payment models

Affiliate marketing follows a pay-per-sale model: affiliates receive a commission for each sale made through their unique referral link. 

Below, Website Builder Expert acts as an affiliate for website builder platforms, earning a commission each time a user signs up to one of the website builder subscriptions via an affiliate link.

On the other hand, referral programs incentivise loyal customers to promote your business by offering incentives like vouchers, discounts or free gifts. Below, Huel’s referral program gives £10 to the referee, and £10 plus the chance to win a £200 gift card for the referrer. 

For Huel, 60% of referrals offered by customers to their friends turned the recipient into a new customer.

Customer relationships

Let's talk about another key difference. This one's about the kind of connection between the person who is referring others (it can be an affiliate or a current customer) and the person who is getting the referral (who could be a new customer).

Let's think about referral programs. Here, the customer already knows the person they're referring. The recommendation is based on trust and an existing relationship, which is why referral works so effectively. 

But with affiliate programs, it's not like that. Here, the person clicking the affiliate link usually doesn't know the affiliate.

Let's imagine watching YouTube, reading newsletters or podcasts. Here, the audience usually doesn't personally know the host. Still, they trust their suggestions because they like what they see or hear and believe that the host knows their stuff.

Level of trust

92% of customers trust recommendations from friends and family over any other type of advertising. When customers refer their friends, it’s a testament to their trust in your product or service. Referral marketing leverages this trust and social validation.

For affiliate marketing, the trust level is tied to the reputation and credibility of the affiliate. For example, a video creator with one million subscribers will likely hold more credibility than a video creator with only one hundred subscribers.

Target audience

The intended audience for these strategies can significantly vary, primarily hinging on the nature of your business and the product or service you provide.

Affiliate marketing casts a wide net, aiming to reach the extensive followership of affiliates. This audience can span across various markets, from niche sectors to mainstream segments, depending on the affiliate's specific focus.

On the flip side, referral marketing zeroes in on your existing customer base and their close network. This approach brings in an audience that's already warm, having a pre-existing connection to your customers. Given that these potential prospects are brought in by a trusted source – your current customers – they're more likely to hold a favorable perspective towards your brand.

This trust element integral to referral marketing positions it as an excellent strategy for acquiring high-quality, loyal customers, leveraging the power of personal relationships.

When to choose affiliate marketing

Affiliate marketing is an excellent choice if you want to influence a broad audience without exerting substantial time and resources on marketing.

Best for eCommerce and digital products

Products that have a universal appeal and are easy to purchase online, like e-commerce goods or digital products, are perfect for affiliate marketing. For example, Amazon runs one of the largest and most successful affiliate programs worldwide, the Amazon Associate program. It allows affiliates to promote millions of products to a vast audience. 

Leveraging influencers and bloggers

Affiliate marketing is a strong choice if you aim to tap into influencers and bloggers. For example, the fashion brand Revolve implements an affiliate marketing program with fashion influencers who have a significant following on platforms like Instagram. 

Performance-based cost structure

With affiliate marketing, you only pay for results. If you want to have control over your marketing costs, you may prefer this model. The web hosting service, Bluehost, exemplifies this by offering affiliates large payouts for every new customer they help sign up.

When to choose referral marketing

Referral marketing works best if you have a customer-oriented business, and your primary focus is to acquire high-quality customers and maximise their lifetime value.

In a world consumed by AI - and the decline of Google search - referral marketing and word-of-mouth are vital channels for driving growth and outpacing the market.

Best for customer-centric businesses

If your business regards customer experience as the heart of your brand, referral marketing is must-have channel. For instance, Dropbox uses a referral program that rewards customers with extra storage space for every successful referral. 

Encouraging word-of-mouth recommendations

As AI dominates and Google search declines, referral marketing has never been more essential.
If your business is customer-first and focused on acquiring high-value users and turning them into loyal advocates, now is the time to unlock referrals.

Why? Because the best referral programs leverage recommendations that cut through the noise, and the brands that use them will outpace the competition and grow with trust at their core.

Below, Tesla Motors has banked on its 'Tesla Referral Program,' wherein owners can refer others to buy a Tesla to receive special benefits.

Works well for subscription and service-based models

If your business follows a subscription or service-based model, then referral marketing will bring in customers likely to stick around. An excellent example is the creative platform Skillshare. It promotes a referral program where existing users can gift a month of a premium subscription to their friends.

How to implement a successful strategy

Implementing an affiliate or referral program goes beyond just picking the right strategy. To successfully execute them, you might need reliable software, an effective reward system, and solid measures to track and assess performance.

Use the right software

Choosing software that suits your marketing needs is crucial. Many software solutions offer dashboards that can help manage and keep track of all transactions related to your marketing programs efficiently.

For example, Mention Me provides detailed dashboards for your referral campaigns, describing its performance and indicating where you can optimise to increase the number of referrals.

Set up a reward system

Giving your customers a reward should feel like a treat. A lot of brands we work with often put their biggest incentives in their referral program. Why? Because usually, when a friend refers someone, that new customer spends about 15% to 25% more on their first buy. Plus, they stick around longer - spending more over their lifetime.

Before you start upping your discounts or thinking about other perks, do some A/B testing to make sure this is a good move.

Sometimes, a person might feel a bit uncomfortable sharing a deal that obviously benefits them more than the friend. On the flip side, if the deal is better for their friend, they might wonder why they're not getting the same offer.

So, a lot of the time, it's just as good to give something that seems fair to both the person referring and the friend. For example, you can send a free gift to the person who recommends a friend, and their friend gets a nice little discount.

Track and measure performance

Keeping track of data from your program is good, but what's key is analyzing it to keep improving.

Keep an eye on these metrics:

• Number of referrals: This tells you how many are joining your program.
• Conversion rates: Check how many referrals actually turn into buyers.
• Customer acquisition costs: Keep an eye on how much it costs to get new customers via referrals.
• Customer lifetime value: Are customers from referrals or affiliate programs more valuable over time compared to others?

And tweak your tactics:

• Use what you learn: Constantly make your referral and affiliate program better with the data you gather. Try out different perks and stick to ones that bring in more buyers.
• Always improve: Keep updating your plan based on what you learn from the data. This can keep your program working well over time.

Common pitfalls and how to avoid them

As you embark on your affiliate or referral marketing journey, being aware of common pitfalls can help you chart a clear course and avoid costly mistakes.

Choosing the wrong strategy 

• For online stores or ecommerce platforms, a referral program can give a significant boost to quality acquisition, customer lifetime value and average order value because referrals are based on trustworthy recommendations made at the right time, to the right person. 
  
  
• For software services (SaaS) aimed at everyday users, referral programs can offer a double benefit: they reward current customers for their loyalty and attract new customers who are likely to start using the service regularly. But if most of your users are creators or influencers, an affiliate program can also be effective. Keep in mind though, lower-priced services might not draw a lot of other affiliates to join your program.
  
  
• SaaS products for business-to-business (B2B) use can benefit from referral programs, providing that incentives are substantial and attractive, especially for high-value products or services. Yet, affiliate programs might be optimal if transactions are high-volume and there is no need for a sales intervention—a notable point as it might be costly to remunerate both an affiliate and a sales representative.
  
  
• For subscription-based services like online courses or premium-content platforms, referral programs can encourage loyal subscribers to bring in similar-minded new subscribers. 
  
  
• For gym services, referral programs prove fruitful in rendering credits or discounts to gym-goers and building deeper loyalty. Even though the affiliate approach may find it challenging to target local leads, there's certainly an opportunity for channel partnerships with professionals like dieticians, nutritionists, physiotherapists, and others.

Not offering enough incentives

A lukewarm reward scheme can result in a lack of enthusiasm. Make sure your incentives are attractive and make participants feel valued.

Lack of promotion and awareness

The best marketing strategies can fall flat if your target audience isn't aware of them. Make sure you invest time and resources in promoting your affiliate or referral programs.

Future trends in affiliate and referral marketing

AI is transforming marketing strategies. If you want your business to stay competitive, then it’s vital to leverage human connections and keep abreast of the latest trends in your selected marketing strategy.

AI-first referral and affiliate programs

AI is here to stay. The savviest brands are adopting AI-first strategies now to outpace the market. Thankfully, AI-powered referral platforms like Mention Me forecast what's coming next and arm you with the knowledge you need to create a strategy that stands the test of time.

A great example of this in action is with Huel, a revolutionary nutrition brand that's leading the charge for better, healthier eating. They used Mention Me's AI technology to spot customers who might be thinking of heading elsewhere and stop them in their tracks. How? By offering free products that turn those at-risk customers into loyal brand advocates.

Personalised customer incentives

Want better results? Match the reward to the person. With data and analytics, you can personalise offers in a way that actually resonates and drives real outcomes. The referral program below shows perfect personalisation in action.

Blockchain and smart contracts in marketing

The use of blockchain and smart contracts on digital marketing platforms is a trend worth watching. This technology promises to bring in transparency, reduced costs, and increased efficiencies to the marketing landscape.

Final thoughts

AI is reshaping the customer journey and traditional ad performance is fading fast. You can no longer rely on paid reach alone for survival and standout growth. This now lies in being recommended, not just seen.

Affiliate and referral marketing both harness influence, but only one is built on genuine human trust. While affiliate channels cast a wide net through third parties, referral marketing activates your most powerful asset: your existing customers.

These are real people, sharing real experiences, and that’s exactly what today’s algorithms, search behaviours, and buyer instincts are wired to believe in.

If AI is rewriting the rules of discoverability, referral marketing is how you stay known, trusted, and chosen.

Ready to grow through the voices that matter most?

Let’s spark your referral success. Talk to our team today to book a free, no-obligation demo today.