We’ve heard many people ask, is affiliate marketing a pyramid scheme? We doubt this riddle will ever go away.
Affiliate promotion and marketing isn’t a shady business model promising instant riches doing nothing. Although you can get wealthy with such a strategy, brands have sky-high expectations of affiliates. And they are willing to pay millions of dollars for exceeding the required output.
So, if affiliate promotion and marketing isn’t a pyramiding scheme, what is it? How does it differ from a fraudulent strategy, and why do some consider the two concepts inseparable?
Is Affiliate Marketing a Pyramid Scheme?
A brief yet resounding answer is NO!
Affiliate marketing is one of the most legitimate strategies for earning extra, an excellent supplement to the average income.
Affiliates are like any self-respecting professional earning money promoting reputable products consumers can use to improve daily lives or address a concern. The offerings have value.
It’s a legitimate business model for product or service promotion.
Pyramid schemes aren’t.
In fact, at least 54 countries consider it illegal, including the US, UK, Australia, Canada, Denmark, France, Germany, India, Japan, the Netherlands, Singapore, and Spain.
So, why is this model outlawed?
Pyramid schemes prey on some people’s need to get rich quickly and easily. Unfortunately, many of these “victims” belong to low-income families, hoping the program will turn their fortunes around.
The model hinges on members’ ability to “recruit” people to join and “invest” in the program. They “live” on “membership fees” or whatever term schemers call it.
Affiliate marketing doesn’t recruit. It promotes legitimate products and services to consumers, compensating the affiliate with a share of the sale if referrals buy the affiliate offering.
Main Differences Between Affiliate Marketing and Pyramid Schemes
Spotting a genuine affiliate platform should be easy if you appreciate the key differences between affiliate (or digital) marketing and a pyramid scheme. Thankfully, we prepared a table for that.
|Promote products to earn a commission
|Recruit members to earn ROI
|Pressure to perform
Now, let’s appreciate these differences a little deeper.
Any activity (or strategy) has a purpose or objective. And here lies the principal difference between affiliate marketing and pyramid schemes.
Affiliates join a program to earn money from each sale as commission, revenue share, or both. They achieve this goal by promoting a company’s products, services, and other offerings to earn a commission.
Meanwhile, “pyramiders” (people involved in a pyramid scheme) recruit “new members” to “invest.” The more people one recruits into the program, the bigger the “pool of investment money.”
Joining affiliate networks or programs is free. And although affiliates might shell out some money for affiliate management resources (i.e., websites, affiliate software, and testing), the cost is still reasonable.
On the other hand, pyramiding schemes require an upfront cost as part of the “new recruit’s” share to the “investment pool.”
Pressure to perform
Affiliates decide when and how to promote affiliate offerings. They know that compensation rests on their performance.
Meanwhile, a pyramid scheme pressures members to recruit new people to join the program. And rightly so. Otherwise, the scheme will collapse because “new memberships” are its lifeblood.
An affiliate marketing program has clearly defined terms & conditions for merchants and affiliates to uphold, including roles, responsibilities, and benefits.
In contrast, a pyramid scheme relies on the human nature of getting rich quickly. You’ll see promises instead of instructions, and the program’s T&C is confusing at best. Someone is preying on your vulnerabilities with a hefty contract.
Affiliate sales & marketing is a sustainable money-making strategy for affiliate marketers, allowing them to leverage humankind’s thirst for new products and services.
On the other hand, a pyramid scheme will only grow if new “recruits” continue entering the program. No “new additions,” no growth.
What is Affiliate Marketing and How Does It Work?
Affiliate marketing isn’t any different from the kind of marketing everyone knows.
Affiliate marketing isn’t any different from the kind of marketing everyone knows, except brands leverage an affiliate’s wide reach.
First, a business has a product or service offering. And the company needs someone to spread the news about these products to end-users.
Marketers post an affiliate link on social media platforms, blog posts, video sharing channels, podcasts, websites, webinars, and other digital channels.
When referrals or potential customers click the special link, the platform opens the company’s product website. They can buy the item and allow the affiliate to earn a commission or share of the sale.
The affiliate marketing model emphasizes output-based compensation. The more audiences you can convince about the benefits of having the promoted product in their lives, the greater the earning potential.
What Are Pyramid Schemes and How Do They Work?
A pyramid scheme is one of the most fraudulent business models worldwide. It preys on humankind’s innate desire to get rich quickly with little to no effort.
First, a company develops an idea to monetize people’s unquenchable desire for a get-rich-quick scheme.
They will share a substantial percentage of the “investment” for every person you invite and consequently invest. The more people you attract into “investing” in the scheme, the greater your share. However, the lower your “investor rank” in the organization, the smaller your ROI.
Hence, a pyramid scheme only benefits “early birds” or early adopters. The vast majority of members or “investors” forming the pyramid’s base get scraps.
Why Do People Think Affiliate Marketing is a Pyramid Scheme?
Although we provide clear-cut distinctions between affiliate platforms and pyramiding schemes, some folks still think these strategies are one and the same.
We cannot blame them because these activities share some attributes.
For example, increasing the number of affiliate referrals can translate to higher commissions. It’s nearly identical to a fraudulent Ponzi scheme (i.e., recruiting more “new members”), leveraging numbers to amass wealth.
This similarity somehow makes people think affiliate marketing is one and the same as a pyramid scheme.
Is high ticket affiliate marketing a pyramid scheme?
No, promoting a high-ticket item to potential buyers is NOT a pyramid scheme, provided the company has clearly-defined conditions or guidelines, doesn’t charge a fee for joining, and only pays affiliates based on outcomes.
What kind of marketing is a pyramid scheme?
A pyramid scheme is a subtype of multi-level marketing where the company promises “sky-high” profits. The only difference is MLM has a product offering, while pyramiding doesn’t.
How does affiliate marketing differ from multilevel marketing?
Affiliates promote many high-quality products from different brands to a well-defined target audience, while multi-level marketers focus more on expanding the distributorship for each product of one company. Multi-level marketers generate additional income from their “downline’s” sales, while affiliates only earn commissions for actual sales.
Is affiliate marketing a pyramid scheme? Of course not! It’s a legitimate and proven way to earn money by building and nurturing audience relationships, leading to a “softening” of people’s stance on buying a promoted product.
The rules are as clear as a cloudless sky, and the promoted products have derivable benefits end-consumers can appreciate and enjoy. More importantly, you must work your “butt” to earn more. After all, your earnings depend on how much traffic translates into verifiable sales.