You have heard about Affiliate Marketing but do not know what is Affiliate Marketing? So what is the difference between Network Marketing and Affiliate Marketing? Not to mention the difference between a pyramid scheme and network marketing.
There is some very confusing terminology, and a maze of different names, for products and principles that are essentially the same. Network Marketing, Multi Level Marketing, Cellular Marketing, Consumer Direct Marketing, Referral Marketing or Home-based Business Franchising. These are different names, but they all have the same principle, so are basically the same thing.
So let’s delve deeper and look at the differences and also why I left Network Marketing and joined Wealthy Affiliate for Affiliate Marketing.
So What is Affiliate Marketing?
Affiliate marketing is a type of performance based marketing where the affiliates are rewarded by a business for each customer or visitor that the affiliate brings to the business. The concept of affiliate marketing was started about thirty years ago and has grown rapidly since it’s inception.
With affiliate marketing, you promote somebody else’s products or services, through your own social network and website. Affiliate marketing is a far more realistic way of how to make a passive income and earning money online, than with network marketing.
There are four parties or players involved in Affiliate Marketing:
- You, the publisher, who is also know as the affiliate.
- The merchant (or brand or retailer)
- The customer.
- Network is the platform where the affiliate can choose which merchant they want to represent. The network also looks after payments to the affiliates.
The affiliate earns commission when a customer visits the affiliate’s website and searches for a product or service. If the customer then clicks on the affiliate link and purchases a product through the affiliate link, the store or merchant pays the affiliate a percentage commission.
Understanding Affiliate Marketing
Many people confuse affiliate marketing with referral marketing. Both are forms of marketing that use third parties to send sales to the retailer or merchant. The difference is in how they drive the sales. Affiliate marketing relies on financial motivations whereas referral marketing relies on personal relationships and trust.
There is a certain amount of overlap between affiliate marketing and other methods of internet marketing, as both use advertising methods. Methods that are used include organic search engine optimization (SEO), Pay per Click (PPC) which is paid search engine marketing, content marketing. E-mail marketing and display advertising.
Affiliates often write reviews about products or services through which they would then generate sales.
Pay per Sale (PPS) or revenue sharing is the predominant compensation method with eighty percent of affiliate programs using that. Merchants prefer the PPS model as they do not incur any advertising expenses.
Many merchants prohibit their affiliates from spamming.
The goal is that the links that the affiliates place on their websites, must be relevant to the actual content and topic of the post.
Advantages of Affiliate Marketing
- As an affiliate, you choose what you want to sell.
- There are millions of products and services available online that you can choose from.
- You can start an affiliate business without a huge initial investment. So it is one of the cheapest ways of starting an on-line business.
- You don’t need to do much actual “selling”. You direct the customer to products that they are already looking for. Many affiliates do so through product reviews.
- Affiliate programs are normally free to join.
Disadvantages of Affiliate Marketing
- You have to develop a presence on social networks and / or build a website.
- You have to find a niche service or product to sell. This is not necessarily a disadvantage as many affiliates promote products and services that they love and are knowledgeable about.
- It can take time to build up your presence to drive enough traffic to your website or social network.
What is Network Marketing?
Network marketing or MLM is different to Affiliate Marketing and tend to have very complex commission structures. The marketeers or sellers need to fulfill certain criteria and reach qualifying levels to be compensated. So in this post I will be talking about Network Marketing, but it is basically the same as Multi Level Marketing (MLM) and all the other types of marketing mentioned above.
If you break down Network Marketing and MLM, it is essentially the same thing.
Network marketing is a direct sales strategy that companies use, whereby they encourage existing sales people or distributors, to recruit new sales people. The “recruiter” receives a percentage of their “recruit’s” sales.
Distributors are expected to build up a sales team or a “down line” and earn commission from their sales as well. At the same time the distributor can also earn commission by selling directly to customers.
Individuals are selling products or services for which they earn commission. If you recruit anybody to your team, you have the possibility of earning commission on their sales.
There can be hundreds or even thousands of distributors in a worldwide network. As only a limited number of distributors earn a meaningful income, it can indicate a possible pyramid scheme.
Many Network Marketing companies are legal, but many also have dubious legitimate practices, bordering on running pyramid schemes.
Understanding Network Marketing
or MLM is very controversial. It uses a strategy that is about people, culture and brotherhood, but at the end of the day you make money off the efforts of other people.
The business model of Network marketing depends on individual representatives doing person to person sales. Many network marketers are home based and work hours and at times that they choose. When you join a Network marketing company, you will be required to recruit more sales people and to build a team.
To join a Network marketing company or MLM, you start by buying a starter kit. They all claim that with a modest investment, you can build a profitable business with network marketing.
Network marketing can be single tier or have multiple tiers. With a single tier system you will be selling the products directly to the end user, whereas with a multi tier program you will also be recruiting more sales people.
- Single tier companies – Avon, Mary Kay and Excel Communications.
- Multi level companies – Amway, Usborne Books, Tupperware and Herbalife (has often been accused of being a pyramid scheme and investigated by the Federal Trade Commission (FTC). Read more about my personal experience with Usborne Books here.
Most Network Marketing companies consist of multiple tiers of sales people that are encouraged to recruit more people to their network or team. You earn commission on your own sales, as well as additional commission on the sales of your team members. So you build a down line.
Your recruits can also build a team with their own down line and the upline will earn commission from the sales in the down line. So your earnings depend on recruitment and direct sales. The higher up you are in the tiers, the more you will earn.
Network Marketing or MLM companies all claim that you can earn residual passive income – it is absolute nonsense in my opinion, because if YOU don’t work, then you don’t get any income. Affiliate Marketing is the way to go.
Many Network Marketing or MLM (multi level marketing) companies are involved in a pyramid scheme, but they hide behind a product. There is a very fine line when it comes to the difference between a pyramid scheme and Network Marketing. To understand the difference, we need to explore and establish what makes a business or company a pyramid scheme.
What is a Pyramid Scheme?
A pyramid scheme is an investment scam and is illegal. Funding in the scheme is provided by new recruits that form the base of the pyramid. The earlier investors or those people in the upline, get their returns from the money that is brought into the scheme by the new recruits.
It is started by somebody that recruits investors with the promise of extraordinary high returns on their investment. The second person recovers their investment by recruiting more investors to join the scheme.
The more people he can recruit, the higher the profit. A certain percentage of the profits make their way upline to the first investors.
Each individual must recruit a minimum number of new investors. This continues, but collapses when there are not enough people at the bottom of the pyramid to sustain the promised returns.
The liabilities of the scheme exceed the assets from the start of the scheme. It invariably looses steam and collapses with those at the bottom of the scheme loosing their investment.
So a pyramid scheme continuously relies on the inflow of money from new investors. Those at the top of the pyramid make the most money, while those at the bottom never recover their investment.
- Basic Pyramid scheme – the Ponzi scheme is the most famous pyramid scheme. It is a fraudulent investment scam Pyramid selling is illegal
- Business Pyramid scheme (Network or Multi Level Marketing) which is structured like a pyramid. The real income opportunity comes from recruiting more people to buy a starter kit and join the company, rather than from selling the products. So there is a very fine line between a legitimate Network Marketing company and a pyramid scheme.
How to recognize a Pyramid Scheme
Pyramid schemes focus predominantly on recruiting more team members to your down line, rather than actual product sales. Often no tangible products are sold, but rather promises about high returns on an investment.
Money from recruiting new people is used to pay the people at the top, rather than those that are actually doing the work. The pyramid would then collapse when the people at the bottom are not getting paid, and / or it is declared illegal.
If the bulk of the profits of a company are derived from recruiting more sales people that have to buy a starter kit and inventory, it is a pyramid scheme. If most of the profits come from sales of the products to the end user, then it is deemed to be network marketing or a MLM company.
Characteristics of a Pyramid or Ponzi scheme:
Pyramid or Ponzi schemes rely on a constant flow of new investments to provide the ongoing returns to the older investors.
- The promise of guaranteed high returns with very little or low risk.
- Investment strategies are described as secret or too complex to explain.
- Difficulty to remove your money from the scheme.
- Investors are not allowed to view the official paperwork of their investment.
- Regardless of market conditions, consistent returns are promised.
- The scheme is not registered with the Securities and Exchange Commission (SEC)
Beware of advertisements from individuals that are targeting expats or specific vulnerable people – most or all of them are expats calling on other expats, exploiting expats and rip them off by appealing to the emotional side to reel them in.
I’m an expat and have seen this happen TOO often – BEWARE.
Advantages of Network Marketing
- You can work from home or remotely.
- If you recruits are loyal, and you are a very good sales person, you can earn passive income.
Disadvantages of Network Marketing
- It will cost you money as you have to buy a starter kit. With many network marketing companies you also have to buy inventory, so it could cost you a lot of money .
- If you are not good at recruiting, then it is very difficult to make money in Network Marketing.
- You have to sell the idea of the product or service, as well as the actual product itself, which is very difficult.
- Normally you are restricted to selling only the products of the network Marketing company that you have joined.
- You are not allowed to join more than one network or MLM company.
- There is a very high level of competition on-line, which makes it difficult to sell.
- It can be difficult to find a reputable MLM company that is not a pyramid scheme in disguise.
Are you still thinking about network marketing? Before you join a Network Marketing or MLM company, ask yourself these questions:
- Where was the emphasis placed for you to make money – was it by selling products or by recruiting team members?
- Are you personally enthusiastic about the products? You will find it very difficult to a sell product that you don’t believe in or are not enthusiastic about.
- Do you know other people that are enthusiastic about the products?
- What is the company’s founder’s track record? If they have been involved in pyramid selling in the past, then avoid the company.
- Is there a fast way to making profits, or will you be treading water for a long time?
These are some of the main reasons why I left Network Marketing, and specifically because of the emphasis that was placed on recruiting and building a team. Without a huge team, your chances of earning a meaningful income, is very small. I joined Affiliate Marketing, and specifically Wealthy Affiliate, as it is a more realistic way to make a passive income online.
Difference between Affiliate Marketing and Network Marketing
The main difference between Affiliate marketing and Network Marketing, is that with Affiliate marketing you are in complete control and can choose the service and products that you want to sell. With Network marketing or MLM you are limited to the products or services that are offered or sold by the company that you have joined.
Most people find it very difficult to make money online with a Network marketing company. It is usually only the ones that are at the top of the tiers, that earn a substantial amount of money.
With Network Marketing, you promote only one company and you have to recruit more people to sign up to that one company. Network Marketing is more about building a team and a down line. The more people you recruit, the more commission you earn.
Network Marketing is about how many people you can recruit and build a down line to sell on your behalf, whereas Affiliate marketing is like owning your own business.
Affiliate Marketing gives you the freedom to choose which products or services you want to promote.
Affiliate marketing creates a win-win situation:
- The customer, who is looking for products, finds the best one through recommendations.
- You, the affiliate, earns by recommending
- The company or supplier gets a new customer.
There are so many get-rich-quick schemes and scams around.
Don’t know how to do it? Let me show you a way.
Wealthy Affiliate offers a solid education for affiliate marketing, web hosting, support and ultimately making money on-line. You’ll be part of a caring and like-minded community.
I hope this has answered all your questions about what is Affiliate Marketing and the difference between Network Marketing and Affiliate Marketing, as well as the difference between a pyramid scheme and network marketing.
If you do have any questions or suggestions, please leave them below and I will get back to you.