One of the misconceptions many have about affiliate programs, in addition to thinking it’s a get rich quick scheme, is that they are a type of multi-level marketing scheme, also known as a pyramid scheme.
First lets look at what, exactly a multi-level marketing scheme is, and then I’ll articulate why affiliate programs are not a part of these schemes.
What Is a Multi-Level Marketing Scheme?
A multi-level marketing scheme, commonly referred to as a pyramid scheme, is a type of marketing program that offers commission-based incentives to its sales reps for bringing on additional sales reps.
The typical pyramid structure is as follows:
- The sales rep makes a commission for selling a product
- The sales rep makes a commission for bringing on a new sales rep
- The sales rep makes a commission for each sale his downstream rep makes
- The sales rep makes a commission for additional products sold by sales reps recruited by his sales rep.
Under this model, an individual theoretically does not have to sell any products to make money, as long as he recruits other people to the program, who in turn sell products and recruit further marketers, creating a large ‘downstream’ group of workers that form the base of the marketing pyramid.
It’s important to note that not all multi-level marketing programs are scams. For example, one legitimate program that has had extreme success is Nerium, a facial products company. However, MLM programs are usually associated with questionable companies, at least in the public eye.
Why Affiliate Marketing is NOT a Pyramid Scheme
To put it simply: there’s almost never a pyramid structure involved in affiliate commissions.
Ocassionally affiliate programs will give bonus commissions for referring new affiliates, but in reality this is a small minority of the affiliate programs out there. Even then, it is extremely rare to find programs that continue the ‘downstream’ commission structure beyond one level.
Where many people confuse the two is with the idea that affiliates can earn income without being directly involved in the sale. If I create a page today and earn money from a link on that page a year from now, it’s lumped into the same ‘passive’ revenue category as MLM programs.
The reality is that this is a poor conception of what affiliate marketing actually is. Yes, affiliates are marketers and they earn commissions from their sales, but so do many other businesses and marketing professionals. That does NOT make affiliate programs part of a pyramid scheme.