A question we get often is, what is the difference between a referral program and an affiliate program, and which one is better for my company?
The differences are more pronounced than they expect. The simplest answer is, referral programs leverage the trust and enthusiasm of people who know your brand and turn those trusted individuals into a new and high-quality customer acquisition channel. On the other hand, affiliate programs place a brand link on a brand or blogger website with the intent of motivating site visitors to click the link.
Let’s look at four major differences between these two programs:
1) Referrals are personal. The advocate (the person who makes the referral) and the prospect know and trust one another. Prospects are more likely to trust a recommendation from a friend than any other source, Nielsen has found. In contrast, affiliate programs generally don’t leverage relationships and transparency. When reading a blog post recommending a brand, it’s not nearly as influential as if a friend recommended the brand.
2) Referred leads are higher-quality. As opposed to affiliate programs with their low personal connection, in referral programs brand advocates know both the brand and the prospects they refer to, so there is a high probability that they are referring friends and associates that are a good fit for the brand. The advocate has effectively pre-qualified the prospect and provided the prospect with an endorsement of the brand.
3) Referral programs drive high lead-close rates. With referrals, the marriage of high advocacy participation rates and trust that originates from the personal connection ensures higher conversion rates and a shorter sales cycle. Our data shows that personal referrals close 42% of the time, double the industry average of 21%. That translates to two new customers for every five referrals made.
4) Referral programs drive high advocate participation. They enable brands to directly reach out to their customers, employees, and partners to uncover loyal brand advocates. Affiliate programs typically do not reach the level of engagement and penetration that referral programs do, mostly because of less program structure and, again, an absence of the personal relationship that naturally drives trust and brand loyalty.
All-in-all, the proactive approach of referral programs trumps the generally more passive nature of affiliate programs. This is not to discount the value of affiliate programs – just to show that you can do better. In fact, affiliate programs can work well in parallel with referral programs. But, on their own, our data proves time and time again that affiliate programs will not contribute to the bottom line to the same extent as a well-managed referral program.