Is Affiliate Marketing A Pyramid Scheme? (Spoiler Alert – No)

This is a question I did not realize people were asking until doing a bit of investigation on the wonderful tool that is ‘Answer The Public’. Is Affiliate Marketing A Pyramid Scheme? was a prominent question. (The short answer is no, lol.)

As a consequence, this post will detail what affiliate marketing is, what a pyramid scheme is, and for good measure, what MLM (or network marketing) is, as there is often confusion between the last two types of operation. (I might throw in ponzi schemes too as a bonus!)

First of all, congratulations on doing your research before jumping into any venture. Unfortunately, there are lots of people out there who only want to relieve you of your hard-earned cash so it is essential to do your due diligence. (Check out my post How To Avoid Online Scams if you are unsure of what to look out for.)

This site includes some affiliate links – if you buy through my link I may get paid a commission but the price remains the same for you. Thank you for your support.

Jump to the section you are most interested in by clicking on the links below:

What is affiliate marketing?

What is a pyramid scheme?

What is the difference between a pyramid scheme and a ponzi scheme?

What is multi-level marketing (or network marketing)?

First of all, let’s look at:

What is affiliate marketing?

Affiliate marketing is a very straightforward business model where you simply promote a product for another business or multiple businesses. There are essentially 4 steps that constitute affiliate marketing:

1. A customer searches online for a product or service
2. The customer discovers super-helpful solution on your website
3. The customer makes a purchase on your website
4. You get paid by the owner of the product or service

There is no one ‘ upline’ or ‘downline’ to get paid. Only you! That’s it in a nutshell, so in no way can it be compared to a pyramid scheme. If you are interested in learning more about affiliate marketing then read on.

How do you get started in affiliate marketing?

Decide on your niche

Within your niche, your aim will be to help your audience find answers to their problems. When you do this you will be seen as a trusted expert in your field which will make your audience more likely to buy what you are recommending.

This is an important decision as you also need to make sure you are entering a niche with a reasonable amount of people interested in the topic or you will spend a lot of time creating content that no one is searching for.

Conversely, if there is a massive amount of competition you might want to either reconsider your niche or see if you can narrow it down a bit.

Check out How To Find An Affiliate Marketing Niche for more information on how to do this.

Create your website

Having decided on your niche, you can have some fun thinking up names for your website. My top tip is to first of all sign up for hosting first because many of the web hosting companies offer a free domain name for the first 12 months. (The cost is usually around $3 per month.)

I highly recommend WordPress to build your website as it is the most favored by Google and easy to get support.

In any case, check out my post How To Build A Website Free, especially if you are not particularly technically minded. There is nothing more rewarding than creating your own website – especially if (like me) you actually didn’t believe you could do it!

Creating content

Once you have your website set up, you can get onto the fun part. Most of the posts you will create will be ‘how to’s’ that will solve a problem that your prospective customer is searching for or product reviews.

However, before you get started writing, you will have to do a bit of keyword research to make sure that what you are going to write about is a) something that people want to know about and b) isn’t so competitive that you don’t stand a chance of ranking for the term over time.

Promote your content

Writing is only half of the job. You now need to get it in front of as many eyeballs as possible! You can do this through social media and/or by building your own email list.

Sign up for affiliate programs

Once you have a few posts on your website and are getting a bit of traffic, you can sign up for affiliate programs. Just go to Google and search for, say, ‘vegan affiliate programs’ and you will find them.

There are also lots of ‘affiliate networks’ where there are lots of programs under one banner. This is quite handy as you always get paid from the same source but there are likely to be some great programs in your niche that you can sign up directly with.

This is just scratching the surface of what is involved. If it has got you interested, do sign up for my 10-week email course on starting affiliate marketing by putting your email address in the box at the top of the page on the pop-up.

What is a pyramid scheme?

A pyramid scheme is a  scam that makes money by recruiting people who pay to join. The person who starts it recruits people to pay him and they recruit people who pay them and so on. A percentage of the money is distributed up the line to the top.

The difficulty with this is that when people can’t find new members to recruit, the whole thing collapses and the only one left with the money is the one at the top.

Pyramids are illegal. You can spot them because there is no product or service. The video below explains it brilliantly.

Click to play this video explaining pyramid and ponzi schemes. Thank you One Minute Economics!

What is the difference between a pyramid and a ponzi scheme?

A ponzi scheme is very similar to a pyramid scheme with the difference being that members think they are paying into an investment of some sort. They don’t know that the money they are being paid is coming from other investors and NOT the investment!

The biggest ever ponzi scheme was to the tune of $64.8bn! This is an extreme example and the operator, Bernie Madoff, is currently serving a 150-year prison sentence.

Both pyramid and ponzi schemes set out to deliberately deceive people and the only winner is the one at the top (unless they get caught and go to jail). This is why I get so mad when I hear people calling MLM businesses pyramid schemes!

A typical network marketing conference

What is multi-level marketing (or network marketing)?

Multi-level marketing (MLM) or as it is also known, network marketing, is a distribution method. A typical traditional retail distribution model would be where a manufacturer distributes (perhaps via wholesalers) to high street stores.

They pay a colossal amount on TV and other advertising to make people aware of the brand so they recognize it in stores and want to buy it. A typical example could be, say, Max Factor make-up. We have all seen the ads for the latest volumizing mascara, I’m sure!

Compare that with an MLM model – Avon would probably be the most famous example although there are thousands of others. In this case, independent distributors are deployed to sell to their friends, family, and people in their local area for a commission. This saves the business from having to pay wholesalers and for advertising etc.

With the MLM model, there is also the opportunity for distributors to recruit (or sponsor) others into the business and earn a percentage of their sales. Just to be clear, this does not take anything away from the new distributor – it is essentially a royalty for sales in their team.

If the new person brings someone else into the business, they get paid a percentage of their sales and so on. It’s not uncommon for the top team leaders to earn a percentage down to 7 levels deep.

Now, listen up because this bit is really important. If I was to bring someone into my team and they went on to build a bigger organization than me, they would earn more than me. Consequently, it is not a pyramid.

Use this checklist to ensure that an MLM is not a pyramid:

1. There is a retail product
2. You can earn money purely on retail if you prefer not to recruit
3. There is no payment JUST for sponsoring someone – you are only paid if/when they sell something
4. The commission structure is on a declining scale – e.g. you get say, 10% of the retail value for your front line recruits but only 2% for someone in your 7th level (for example)

An MLM business structure like this is 100% legal and incredibly fair – the people who create the biggest turnover make the most money (unlike in a conventional business!). However, if you don’t know the ins and outs it can very easily be mistaken for a pyramid.

Conclusion

There are dodgy operators in every business under the sun, especially if there is the opportunity to make significant amounts of money. Beware of anything that offers a quick return on your money or to supply traffic fast to your website, or ‘done for you’ systems. In fact, anything that suggests a shortcut.

Genuine businesses take time to develop and grow – it’s not what we want to hear when we need money fast (sorry!) but going after get rich quick ‘opportunities’ will lose money, not make money. If you have had experience in this area I would love to hear about it in the comments below.

If you would like to learn about how to get rich slowly, check out my review of the training platform that got me up and running with this website.