When to Use Affiliate and Refer-a-Friend Options
Perhaps the biggest and best sign that your business is doing something right is a returning customer willing to recommend you. It means they like you, and they’re happy to spread their enthusiasm. But it also ups your chances of gaining more fans along the way—customers trust other customers.
As the saying goes, once is happenstance, twice is coincidence, three times is a pattern. And repeat recommendation patterns should be nurtured, and can even be created. If you do this by offering a financial reward for referrals, it’s simply known as a refer-a-friend scheme.
Similar (but not without distinct differences) are bonafide affiliate schemes, which are mutually beneficial partnerships between websites and businesses. In the most basic sense, affiliate schemes are systems that allow any other business or person (usually only those approved by you) to send traffic to your site in exchange for a commission.
While the two systems share something in common—the method of tracking referrals—the difference is the personal link to your business in refer-a-friend scheme which adds to the value of the endorsement.
All too often, these two different ways to generate business are muddled. In this article, we’ll examine the benefits of each, and how to set them both up.
Before you start…
Before you start down a potentially long and complex path, it’s worth thinking about what you can do with your current assets.
As a starting point, take a step away from the idea of refer-a-friend or affiliate schemes, and see what you can do with your current setup. Contacting customers via your social media channels is a simple solution for this. Some people might only need a nudge in the right direction (rather than commission) to refer their friends.
Refer-a-Friend, and Why it Works So Well
People feel reassured by a third-party endorsement in a way that’s almost second-to-none. However honest we want our business advertising to be, everybody knows a business will only ever say good things about itself. So if you’ve managed to convince someone else to do this—well, you must be doing something right. An individual’s testimonial adds legitimacy for many people.
Also, people referred in this way who are also likely to spend money with you. Birds of a feather flock together, and the chances are, your customers are connected to people similar to them, and interested in similar things.
Business Type Matters
Companies that are subscription-based—television, broadband, our banks, etc—use refer-a-friend a lot, because the average value per new customer can be significant when people have to spend every month, and where changing provider again takes time.
So, you need to do your research and understand the average value each new customer brings your business (and what this means for the introduction of these schemes). If you sell low-value products that require high volumes of customers, a refer-a-friend scheme is unlikely to yield enough value per referral to justify itself.
This is because refer-a-friend schemes value the customer over the transaction, and usually pay a lump sum of money as a reward. This means they are best suited to the kinds of businesses listed above, where each customer is worth a lot.
If you’re a reseller and sell a product (like stationary), giving those who refer to you a small percentage of each sale will be more feasible than the lump-sums usually found in refer-a-friend schemes (as transaction value per customer is low, and what you need is volume of customers, rather than ‘quality’ (per se).
This means a traditional affiliate scheme might work better for you. These (at their best), send a high volume of traffic, and the affiliate earns per sale, so you’re never going to lose money on a transaction if it’s correctly set up, and your affiliates will know their performance is based on transactions completed. Let’s look at ways to implement both systems in more detail in the next section.
In reality, you’re not just comparing refer a friend to affiliate marketing. You’re comparing it to how else you could spend that money on other channels. Benefits of refer-a-friend vs. more standard types of marketing (eg: Pay Per Click) include:
- You usually only pay if customers transact – no wasted money on dead leads.
- Implied trust – as we’ve mentioned, the endorsement is valuable.
if you’re not sure if this approach will work for you, here are a couple of ways you can try it out.
- Super simple option
If you’re hoping to test the waters and have a few friends in mind who are a good fit, (or maybe your sales aren’t actually processed online—people come to your store to transact), this ‘home-made’ style approach could work for you.
Reach out to those who you think would be interested, and provide them with a code for their referrals to present to you, and agree the commission they will get in advance. Be clear that it’s their job to ensure that any new customer has to give you the code when they purchase in order for them to earn their fee.
- More complex option
Presuming your friends want to put links on their site (rather than actively giving out a code on social or by word of mouth), you can simply give them a link to their own special landing page on your site.
Transactions completed from this page will identify those that come from your friends. You can create hidden pages in most website builder systems. There are several ways to do this on WordPress, for example. Create one hidden page (that doesn’t display in Google results, and isn’t accessible from your site) per friend to avoid any confusion when it comes to which transactions came from where.
As we mentioned, affiliate schemes tend to be heavier duty systems designed to automatically process large amounts of orders from partner sites (who may or may not actually use your services themselves).
Mostly, affiliates will choose you because they feel your service or product is complementary to them or adds something they don’t offer. A TV company might be an affiliate to a wall mounting company—a chance for them to make something out of a service they don’t offer directly.
There are several ways you can approach starting an affiliate program. It’s worth noting from the outset, that to do these on a large scale can require a significant investment of both time and money.
WordPress Affiliate Plugins
If your site is built on WordPress, there are several bespoke affiliate plugins that could work for scaling your affiliate program. Plugins like AffiliateWP, WP Affiliate Manager, Ultimate Affiliate Pro are big names in this area, but there are myriad others too, so research to find the one that offers what you need the most.
Similar to what WooCommerce does for shopping, these plugins add several out-of-the-box pages to your site. These new pages allow your affiliates to create themselves a profile, login, track their earnings, and more.
There is also a back-end part of these plugins where you can manage, pay, and vet your affiliates—perhaps you don’t want to allow ‘just anyone’ to represent your site. This video guide to AffiliateWP is a great way to learn more about what this kind of plugin does for your site.
Systems like these can be a great starting point, especially if you don’t want to invest much money (some are even free). However, as you’ll notice if you watch this 18-minute video, it only really scratches the surface of what you need to know to go from nothing to $$$.
Here’s a quick rundown of the pluses and minuses.
- A good way to expand, track and automate your affiliate program.
- Some platforms are free or relatively inexpensive for a basic version.
- Mid-weight approach can be quite an effortless way to ramp up your affiliate scheme.
- Could be used in conjunction with SAAS programs (see below).
- Easy to build them up at your own pace, with plenty of add-ons to try out as, and when, you need them.
- Plugins still don’t automate everything—a lot of manual management is required.
- It can get expensive if you choose to upgrade to the all-singing, all-dancing specs.
- Will developers update tracking software as often as other methods, and will tracking be as accurate?
- Small, manual payouts can lead to associated costs from companies like PayPal.
- Affiliates need to trust your site, the payout system, and be sure that you can keep up with the system— especially if they don’t know you personally. A professional affiliate network (below) handles a lot of this for you.
- Can you monitor fraud attempts, (like brand name bidding) that could damage the reputation of your program?
Big-time Affiliate Sites
At Namecheap, we used to run our affiliate program internally but decided (for some of the reasons outlined above) that it would be more resourceful to use external affiliate networks.
The big affiliate systems are tailor-made to run large-scale affiliate programs, and one of their biggest draws is their pools of potential affiliates for you—people actively looking to engage in new affiliate programs.
These systems tend to be more expensive than the plugin counterparts we examined above. They usually involve a monthly fee, and sometimes commission per sale as well, but what you get with these is a level of sophistication and automation that most plugins can’t replicate.
If you can manage your own internal affiliate contacts (using either a bespoke system, or one like the WordPress systems listed above), an Software as a Service (SAAS) program mainly provides solutions for tracking, and sometimes paying out. Basically, they take on the parts of affiliate management that tend to be trickiest while leaving the rest to you. For this reason, they cost less than full programs.
Full Affiliate Network
They take care of everything from account management to links-tracking and payouts. But let’s get to the meat of it—the main thing you get with the full affiliate network is a pool of affiliates looking for things to endorse. This means people can organically discover your site, and then request to be an affiliate. You can vet them, approve them, and they can manage their own payouts, and the system will do the rest.
All you have to do is monitor things, and email your clients from time to time to remind them of your presence.
- Advanced tracking, account management and payouts.
- Affiliate pools of potential customers.
- Price – it may be one word, but it’s a big ‘un. These systems can be very expensive from the off. You will find different pricing structures that split between percentage commission, and monthly fee. Some of these are better when you’re starting out but become more expensive as you expand, or vice versa—but basically, you’ll need to choose carefully (and pay monthly).
- There are no guarantees – not all affiliates generate sales. A high percentage simply don’t perform, so you could end up out of pocket if your program isn’t popular among successful affiliates.
So, Which Route is For You?
There is no hard-and-fast rule about which route to take. The quick tricks to help your friends refer people might be the best option if you have a small amount of time and money to invest, and if you aren’t too tech-savvy when it comes to sites.
If you have a huge site that you think will do well on a fully-fledged platform, you don’t need to be as tech-savvy, but you will pay (and hopefully, earn) more.
The best advice is to adapt—create your own approach that works for you and don’t over-invest until you’ve tried to see if it works. Test the waters to try things more simply before you jump in for a swim.