In my affiliate career, the common question asked by my students to me was- is affiliate marketing a pyramid scheme? Look, there is no doubt, if you’re looking to earn some money from home without having to invest much, affiliate marketing might be a good option for you.
However, some people identify it as a pyramid scheme. And as an affiliate marketer, it was an absolute challenge for me to convince people that I wasn’t involved in any sort of pyramid schemes or multi-level marketing. But the question remains, is affiliate marketing a pyramid scheme?
My experience says, NO. Affiliate marketing is not a pyramid scheme. A pyramid scheme is a faulty business model. It sells the right to sell a product to its members, who in return lure more members in with the promise of future payments. On the other hand, affiliate marketing is a commission-based business model. If your promotion generates a sale for your vendor, you earn a fixed commission.
In this article, we’ll take a closer look at pyramid schemes and affiliate marketing. We’ll compare them side by side, and explain in detail why they’re not the same. Although these two business models are completely different, many people confuse both as the same thing. I’ll try to clear any confusion, or any questions you might have. Let’s get started.
What Is A Pyramid Scheme?
A pyramid scheme is a business model with several membership levels. It works on a referral system. The owner of a pyramid scheme or an MLM venture usually has a product that they’re selling. Most of the time this product or service is non-existent, and the nature of this venture is fraudulent.
To earn money from a pyramid scheme, you are required to pay a fixed amount of money. This money will give you the license to sell this company’s membership.
Suppose, you paid 1000$ to become a member of an MLM based company. You then invited 10 of your friends to join this company. 5 of them agreed and paid 500$ each to become members. You’ll then earn a 10% referral fee for making 5 new members for the company.
That’s 250$, so you should be happy, right? No. Because the remaining capital goes to the higher chain of members.
This is unfair, because the senior members didn’t do any work, yet they earned more than you.
Now your 5 friends have a lifetime membership. They cannot sell this to anyone, so they’re out 500$. However, since they have a membership, they can refer or invite more people to join this company. Their referrals will result in earning them a commission, and the remaining capital will go to the senior members.
This ends up creating a pyramid structure, where different levels provide different income potential.
To earn more commissions, the only way is to qualify for a higher level. To qualify for a higher level, you’re required to pay more money. If you don’t, you’ll lose referrals and the chance of earning further commissions.
The main problem with a pyramid scheme is that its stability is dependent on the recruitment of new members. If new members stop joining, the structure will eventually fail, and most members will lose their investments. Only the people at the very top will be secured.
Moreover, a lot of MLM companies don’t have any actual assets. They pretend to have non-existent assets and sell those shares to everyone. When the company’s fraud becomes apparent, most of the investors lose their money. The only way these fraud companies make money is by cutting the pockets of someone else.
An MLM (Multi-level marketing) network looks like a pyramid, that’s why it’s called a pyramid scheme.
I found most of the MLM programs out there are illegal. The only way to make money through an MLM network is to create more members. If you only promote the product or sit around with your product or service, you’ll likely make no money.
Because this way, you’re stuck at the bottom of the pyramid. The more people you recruit, the more commissions you make. Which increases your chance of upgrading to a higher level.
Pyramid Scheme vs. Affiliate Marketing
Pyramid schemes and affiliate marketing are both business models reliant on a commission system. Although many people think that they’re the same, nothing could be further from the truth.
As an affiliate marketer with past experiences in MLM networks, let me tell you the truth.
They are completely different. In theory and practice.
To help you understand better, I’ll compare some basic features of these models.
- Pyramid schemes are illegal in many countries, including in the United States. Affiliate marketing is legal all around the Globe.
- Pyramid schemes require a membership fee. As you go along, you’ll see more membership fees before you can earn commissions. Affiliate marketing is completely free. There are no membership fees. All you have to do is to select a product, take the affiliate links, and start promoting. Anyone can become an affiliate marketer without spending any money.
- Pyramid schemes require real-life presence. Affiliate marketing is an online venture.
- Pyramid schemes usually promote only one product. Affiliate programs promote a lot of products. You can choose however many products you want to promote.
- Pyramid schemes are all about recruitment. Unless a member successfully invites a lot of new members, he’s unlikely to make any commissions. Affiliate marketing does not depend on any kind of membership incentives. Your work is very much like a salesperson. You promote a product to a specific crowd of people, and if they buy it, you get a commission.
- A pyramid scheme is not your business. Technically you’re an employee. You cannot sell your membership, or get your money back. Even though it’s your asset, you cannot sell it. On the other hand, an affiliate marketing blog or website is an asset. It’s also a business. You have complete control over it, and you can sell it.
- Pyramid scheme marketers have to promote the selected product provided by the company. You have no say in the matter. So if the product is faulty, you won’t be able to make any more money. Because your marketing methods are based on a product, not on your credibility. But, since affiliate marketers operate on their own, they can easily shift from one vendor to another. Their marketing methods are based on personal credibility, not any specific product.
- A pyramid scheme has a design that works in favor of scammers. Without any real product, someone can easily sell a membership to people, which those people sell back to other people. Affiliate marketing has a foolproof design. No party can scam the other one.
- Pyramid schemes require a physical presence. You have to go to your customers and talk to them about your product. Affiliate marketing is an internet-based business venture. Your customers will reach out to you.
Is Affiliate Marketing a Pyramid Scheme?
No, affiliate marketing is not a pyramid scheme. It’s a modern business model that is followed all around the world. It’s secure and foolproof structure manages to benefit everyone.
Affiliate marketing has a direct one to one structure. A vendor or a company decides to sell a product online. Anyone can apply to be an affiliate marketer. The vendor then provides the marketer with an affiliate link. He can use this link on his social media platforms, website, or blog. Every time someone purchases through this link, he earns a commission.
It’s an authentic process. No one can scam the other. The relation between vendor, marketer, and customer is straightforward. Everyone is in control of their position.
So clearly, affiliate marketing and the pyramid scheme are much different models than each other.
How is Affiliate Marketing Different?
Affiliate marketing is one of the most popular money-making ventures in the world today. It benefits both vendors and marketers equally and enriches their business. It is no longer considered as an additional source of earning or an additional source of advertising. There is an entire industry behind affiliate marketing.
The best part of affiliate marketing is that no one has to spend any money to get started. Any vendor can put their products online, and anyone can apply to become an affiliate marketer. There are no financial risks involved.
There are different types of earning terms in affiliate marketing. The most basic affiliate terms are
- Pay per click (PPC): PPC is one of the most popular ways of affiliate marketing. In this way, the affiliate earns commissions every time someone clicks through the vendor’s affiliate, even if they don’t buy anything. However, PPC is a low paying program.
- Pay per performance (PPP): PPP is another profitable affiliate marketing strategy. Whenever a referral link generates a purchase, the marketers earn a commission of up to 15-20%. PPP is much more lucrative and pays a decent wage.
The main problem with pyramid schemes is that they are misleading. Most of these businesses prey on people’s gullibility. People invest a lot of money for the promise of earning a commission. But pyramid schemes only pay to the top of the structure. And that’s usually the business owner.
All in all, it is an unfair business structure that plays a trick on most of its members. You’re nothing but a pawn for the people at the top.
Affiliate marketing on the other hand is reliable. The payment system is the same for everyone. Multi-level marketing is completely useless, compared to marketing by affiliates.
The one-on-one relationship between a vendor and an affiliate marketer eliminates any chance of pyramid-like-activities. They’re almost like a part of the vendor’s business, although an affiliate marketer can choose to change his products or vendor.
Hopefully, by reading this far, you got an idea about how a pyramid scheme and affiliate marketing are different. Also, you got your best answer to the question of-is affiliate marketing a pyramid scheme or not. All of this given information is directly from my real experiences.
At least that’s how I see it. They both have their own advantages and disadvantages and it would depend on you to decide which one is better for you.
On this website, I talk mostly about affiliate marketing and share all my knowledge to get success from it. If you are interested in the same, check out my related blogs that may be helpful for your affiliate career.
For now, thanks for stopping by.