Many marketers don’t know the difference between affiliate programs and referral programs. 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 to decide which program is best for his 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.

The difference in the structure of these two programs

Structure

Affiliate programs. The 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.

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.

Compensation

The compensation model is usually an agreed percentage based on the sales. It could differ greatly from the first 10 customers 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.

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 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.

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.

Agreements

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.

Which One Is Better?

It is safe to say that both types of programs are going to be beneficial to growing your business. Affiliates will definitely be able to bring in more traffic and sales for you.

A good referrer can easily increase your branding and reputation. Giving the chance, they would even make good comments about your offer on social sites or Facebook, which can potentially help you get even more exposure and sales.

It is best if you could set up both an affiliate program and a referral program to get the best out of both worlds. Just think about it, your affiliate will drive you the initial sales and capital required for more advertising and improving on your product’s quality. And your referral strike force will be out there giving you the best kind of testimonials you could ever hope for.

The affiliates are now using ‘review and recommendation’ tactics that are similar to a referrer’s job which is to build some sort of trust and relationship with their traffic first and then drive them to your offer.

Tips for an Affiliate Marketing Referral Program

If you are thinking about setting up an online affiliate marketing referral program to promote your business, here are 3 tips

1. Online affiliate marketing entails zero downsides for your firm:

The very best thing about this marketing technique is that you don’t take any risk. Theoretically, you could have a hundred or more affiliates working for you and, if no sales are ever made, you do not pay a dime in fees.

2. Be generous with your commissions:

If you decide to set up an affiliate marketing program, be sure to be generous with your commissions. It is tempting to get greedy here but thinks about this: the typical affiliate will generally work to promote not only your products and services but many others as well.

If they find they are able to make more money promoting someone else’s products because you have chosen to pay very small affiliate commissions, they will stop spending their valuable time promoting your site.

Instead, you need to set a reasonable figure for what you are willing to pay for each sale. Whether it is an absolute dollar figure or a percentage of sales, just make sure that whatever figure you come up with leaves you with a viable profit margin – but makes the affiliate want to come back for more.

3. Track the Sales:

The final step to a successful program is to ensure that you are setting up the proper controls and policies. To protect yourself from paying commissions on returned items, set up a one-month delay between a sale and a commission payment. And, to protect the affiliates, make sure you have a fair, transparent way of tracking their sales so that they can be confident they will get paid for services rendered.

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