Is affiliate marketing a pyramid scheme? Everything you need to know.

Hi I am Praneeth

Affiliate marketing is one of the best digital marketing strategies that brands and companies are using nowadays to drive more sales to their business.

Still, Today many people have this misconception and misunderstanding between affiliate marketing and pyramid scheme and many people believe that affiliate marketing is the new pyramid scheme of this decade.

Because I have been into both of the cases I have good experience in both cases so [yes I have been into MLM and pyramid scheme before blogging but that’s a different story],

In this blog, I would take the opportunity to clarify some doubts and misconceptions on is Affiliate Marketing a Pyramid Scheme and the difference between Affiliate Marketing and MLM company.

Without further ado, 

Let’s get started.

Here is a 30000-foot view of the blog

What is Affiliate Marketing?

affiliate marketing

Affiliate marketing is the process of selling products and services of other companies and brands on digital platforms like blogs and social media,

People earn money as a commission for each sale they make of other companies’ products to people on the digital platforms where,

They promote the product and the sales are tracked using special links called affiliate links as these are provided within the affiliate account of the affiliate program or network you have joined.

Here are some helpful resources for affiliate marketing.

Now let’s learn about the pyramid Scheme.

What is a Pyramid scheme?

350px-Pyramid_scheme.svg

Image source.

A pyramid scheme is an unsustainable business model where you are investing money in buying a bad product to get into a chain and network,

Where your job is focused more on recruiting other people as distributors in the chain to the company by promising them that they will make money in the future,

By recruiting other people as distributors for the company under them as you do instead of focusing on driving sales of the product and growing revenue of the company.

According to the government, Pyramid schemes are scams.

These schemes are like Pyramids, starting from the top of the pyramid where a single person who is the owner of the business will recruit a bunch of distributors for the product of his company and,

Asks each of those distributors to recruit a bunch of new distributors separately by letting them invest money and ask the new distributors who are recruited to do the same [each distributor recruit bunch of new distributors more], like this,

The number and network or chain of distributors goes further and further at a point where it just breaks down and collapses,

Because the total number of people who are recruited as distributors for the company exceeds the world population [You can see in the image above].

You will learn in the next part how the recruitment of new people as distributors helps existing people involved in the scheme make more money.

What is Multi-Level Marketing [MLM]?

mlm

Multi-level marketing is a strategy that companies use to make direct sales of products from manufacturers to consumers like the person to person sales and to further increase sales of the company,

Just like a pyramid scheme, every individual who bought the product will be a new distributor of that product and they have to make new recruitments of distributors for the product and increase sales of the product to the company.

There are 2 terms you should keep in mind in MLM, 

  • Upline-It refers to people who recruited you in the MLM company as the distributor usually above you and top of all the uplines is the owner of the business who is at the top of the pyramid.
  • Downline-People whom you recruited as the new distributors for the company, are usually below you or you are the upline to them.

The whole idea of recruiting people as distributors in MLM or pyramid scheme is,

You earn money in 2 ways in MLM and pyramid scheme, 

    1. Selling the product of the company to other people as the distributor of the company and earning money as the commission in the sale.
    2. Recruiting more people as the new distributors in the business and whatever the sales your new distributors [your Downline] makes separately without your interference, you will get a little percentage of money in those sales and you will continue earning money as the chain continues growing [Your downline] further and further because you are above them or [upline of them].

Through this idea, Everything & everyone is interconnected in this strategy like a chain or network and you mostly [Upline] earn money passively without doing anything as long as your downline keeps on growing further and further by recruiting more people.

Hence it is also called chain selling, network marketing, or pyramid selling.

Difference between Pyramid Scheme and MLM.

There are a couple of differences between a pyramid scheme and a legitimate MLM business, let’s have a look.

The first major difference between MLM and the pyramid scheme is that in the pyramid scheme no real, valuable, and reliable product is sold unlike MLM where the product sold is at least reliable, real, and valuable.

And in a pyramid scheme, you are supposed to only recruit or join new people as distributors in the chain under you which is also called as downline distributors for you to make money as commissions, and less focus on consumer and product selling,

If any legitimate MLM company that you have joined asks you to recruit or join more people in the business to make money instead of asking you to make more sales of the product of the company then,

You should know that it is a pyramid scheme but the focus of most MLM companies will be more on product selling and

Creating a market for the product than recruiting new distributors for faster profits as a pyramid scheme does.

In a pyramid scheme, you cannot get your money back but legitimate MLM companies do take the products back if the products are unsold by their distributors.

The startup costs are less in MLM companies as compared to the ones in pyramid schemes.

You will learn more things about the pyramid scheme, what is the difference, and how to identify it in detail below.

Now, As you know, What’s the difference between a pyramid scheme and MLM, 

Have a look at 3 similarities between both affiliate marketing and pyramid schemes.

Similarities between Affiliate marketing & Pyramid scheme.

Well here are 3 similarities between the two.

  • Both types are marketing strategies that companies use to drive more sales for their products.
  • Both strategies are based on a commission system.
  • Both have a bunch of frauds in their history where one has more than the other.

Now that you got the idea of similarities between the two marketing strategies,

Now let’s learn what are the differences between the two in detail.

Is Affiliate marketing a Pyramid scheme?

No, Not at all.

There is a 180-degree distance and difference between both marketing strategies although they appear similar to each other,

The biggest difference between both the strategies is that,

In affiliate marketing, you earn money based on products that you sell for the company not based on people you recruit as you do in a pyramid scheme.

In affiliate marketing, you have complete control of selecting the product before you start promoting it, whereas in a pyramid scheme or MLM business you have no independence of selecting the product.

Another key difference between both affiliate marketing and pyramid scheme and MLM is,

You need zero investment in starting affiliate marketing whereas it is not the same with a pyramid scheme or MLM,

As you need to invest some money in first buying the product before you either start selling it to others or start recruiting other people to make money.

Now there are many small and big important details and differences between both the strategies.

Here is a quick table of 13 differences between both strategies.

Difference between both the strategies.

Here is a table of 13 differences between the two.

S.No.Affiliate marketing.A Pyramid scheme.
1.You don’t need to invest a single penny to get started.You need to invest money in buying a product or get into the chain either once or on monthly plans to get started.
2.You can work from any part of the world to be in the business.You cannot work from any part of the world to be in the business.
3.You have the independence of selecting products and services on your own before you start selling.You don’t have the independence of selecting Products and services on your own as you can only sell the product of the specific company you joined before you start selling.
4.You have complete control over how you want to promote the product and drive sales to the company, you can use many ways including blogs, social media, SEO, SEM, email marketing, etc.You cannot promote the product or Drive sales to the company using blogs and social media As there is more direct communication involved Between you and the customers or people mostly by attending seminars or events.
5.You don’t need any marketing knowledge or Sales skills required.You need some marketing knowledge and sales skills to get started with this.
6.It is a strategy that benefits All the marketers Who are in the game with fixed commission rates for selling products.It is a strategy or more of a structure designed in a way that most benefits people on top of the pyramid.
7.You can sell real, genuine, and legitimate products of Companies that people are familiar with.The products that you sell are not so genuine and legitimate As they are not at all advertised anywhere by the company And people are not so familiar with the products neither the marketers are.
8.You don’t need to invest money in any phase of this business like In marketing materials as companies will provide it free for you as their affiliate.Despite investing money in buying the product to get started, You might have to invest more money in other expenses like Attending seminars, training sessions, And marketing resources, etc.
9.You earn money based on the products that you sell or for any other action that users make like a lead for a company or driving traffic to the companies website.You earn money from the people that you recruit or join In the structure or chain and people who joined or are recruited by you have to do the same (recruit even more people for you and them to make more money) and the chain continues further.
10.Practically and mathematically the whole system and strategy is possible and makes sense when you think about it in depth.Practically and mathematically the whole system and strategy is impossible, falls apart, and does not make sense when you think about it in depth.
11.You are just selling products of companies to people or consumers where you are acting as an extended part of the sales team to companies but not recruiting people in a chain system and hardly emotions are used in the process of this strategy as people who need products can read reviews you write of products online before buying them in this strategy.You are selling products to people, it is like recruiting people in a chain system and you are promising people that they will make money by joining even more people in the chain under them and these marketers use a lot of emotions to convince people to join the structure by purchasing stuff like people don’t have any actual need of the products they buy in this but they are forced to buy the product, it just that to be a part and make a profit in the chain.
12.There is no pyramid or chain system involved, everyone who wants to be an affiliate marketer can get their free affiliate account separately created on the company website or in affiliate networks like Amazon and Shareasale, and marketers are in no way connected.There is a pyramid structure or chain structure involved, unlike affiliate marketing, you have to buy products from someone and be an employee under someone called as upline and downline in this strategy, and all the marketers are connected in a chain system in this strategy.
13.It is a real deal and a lot of people involved in this thing are making huge amounts of money every month.It is not as real as an affiliate, there is a bad track record with lots of scams and people involved in this strategy and business mostly waste a lot of their time and money.

Now that you know about the complete difference between affiliate marketing and pyramid scheme, 

Here are some signs that you should look after to make sure that you never confuse other marketing strategies with the pyramid scheme and stay away from this scam.

How to identify the pyramid scheme?

why freelance is bad

Here are 5 things to look after and easily identify the pyramid scheme if there is any in the businesses and marketing strategy.

  1. Before buying the product of the company look at the quality, price of the product and see if there is any demand for the product in the market.
  2. Your income is dependent on how many people you recruit and how many those people bring new people into the business and make the chain long rather than independent sales you drive to the company.
  3. Before joining the business, you will be told by your friends or those who recruit you in the business that you will be making money passively in millions and be your boss, and all that hype all revolving around the idea of selling the product.
  4. You will undergo a seminar where you will learn about the magical product that changed thousands of lives with proofs where people associate their success by buying the product and selling it to others like a lot of emotions are used to convince you, be a little skeptical about it as this is the normal process of recruiting people in most pyramid schemes.
  5. You are forced to visit places, attend seminars and events, and purchase many other products and resources even if you don’t need them.

Now that you know how to identify the pyramid scheme in any business,

It is advised to take the 5 points of this part as references and make your own decisions and always avoid joining the pyramid schemes and those MLM’s as you will waste your time and money at the end of the day.

Ending remarks.

Affiliate marketing is one of the best ways to earn money online in 2021,

You should not miss the amazing opportunity to make money keeping wrong ideas and concepts about affiliate marketing in mind.

Do comment down what do you think about the blog post in the comments section below.

Share the blog post with your family and friends if you have found the blog to be helpful.

Sharing is caring.

Read my other blogs,

I will catch you next time,

till then,

keep learning and keep growing.