Is Affiliate Marketing A Pyramid Scheme? Breaking Down Misconceptions

Discover the key distinctions between affiliate marketing and pyramid schemes. Get insights from our expert guidance to spot and avoid falling into a pyramid scheme trap. 

Introduction 

Are you looking for a way to make money online? If you do, you have definitely come across affiliate marketing and pyramid schemes.

But, like other newbies, you are confused by all the jargon and claims: “Is affiliate marketing a pyramid scheme?”. Don’t worry, I’m here to help.  

The short answer is affiliate marketing is not a pyramid scheme. 

Actually, your question is among the most common misconceptions that affiliate marketers have. In this post, I’ll explain why affiliate marketing is not a pyramid scheme, how each of them operates, and how to spot and avoid pyramid schemes that you might fall into. 

What is affiliate marketing?

Affiliate marketing is a legal business model and one of the most prevailing marketing strategies today. Almost every upper-medium brand has its own affiliate program.

Working as an affiliate is like being a super fan of something – you tell everybody about it – but furthermore, you are getting paid for it. 

Then, every time people purchase the products or services via your recommendation, you get a cut of the profit.

Pretty cool huh? 

How does affiliate marketing work?

Here’s how it works, folks. Imagine a triangle with three points.

At the first point, you have the merchant, who makes or sells the product. 

At the second point, you have the affiliate (that’s you!), who helps spread the word about the product.

And at the third point, you have the consumer, who buys the product.

To become an affiliate, you will need to register via an affiliate network, which connects you with thousands of merchants. 

When you are already an affiliate, you use your online mojo to hype up the product. You can do it with any digital material you have – a website, blog, social media, email list, or whatever possible. In such platforms, you embed a link connecting to the products page, where people can place an order. 

Basically, when someone clicks on your affiliate link and buys the product, you get paid.

Benefits of Affiliate Marketing

It’s a triple-win situation as the merchant gets customers, you get cash, and the consumer gets value. If you wonder how customers benefit from it, we have the whole post to explain pricing advantages and values that customer has.  

For Affiliates:  

• No cost to start: No money, you just need a laptop and marketing knowledge.  
• Passive income: As long as viewers watch your content, you have money.  
• Scalable: Join multiple programs that can diversify your income sources. 

For Advertiser:

• Effective investment: Advertise pays the commission when they get desired results.
• Broader Reach: Advertiser taps into diverse audience groups of multiple affiliates, reaching beyond their usual market scope.
• Customer Insights: An affiliate campaign provides data through various buyer segments and channels used by affiliates. 

For Customers:

• Diverse choices: There is a wide array of products or services from online affiliates.
• Quality-Guaranteed products: Affiliates tend to create authentic review content, providing more information for customers’ purchase decisions.
• Special offers: An affiliate can offer discounts and exclusive deals for a long-time customer, based on their tight connection with the brands.   

What is a pyramid scheme?

So, come to the important part.

Imagine a group of people promising you a huge return for investing in something that will x3 after 3 months. You don’t have to do anything but only wait, and ask for your friends to join this lucrative program. 

Sounds too good to be true, right? Well, because it is. 

That is a pyramid scheme, they are a big no-no. 

Pyramid scheme: How does it work? 

A Pyramid Scheme works like this: 

Some people at the top of the pyramid convince others to join them by promising huge returns on their money. However, the new recruits need to pay a fee, sometimes they call it an initial investment, whatever.  

And, that money goes to the people at the top. 

Then, the new recruits have to find more people to join. If there are any, a part of the joining fee comes back to the new recruits’ (now are recruiter) pocket. And so on. 

The pyramid schemes rely on recruiting new members, rather than selling actual products or services. Not sustainable at all.

The bigger the scheme grows, the more people it needs. With its nature to grow exponentially, the number of members could reach millions, but most of them will lose money.

In most cases, the scheme became so big that impossible for authorities to not know – leading to an inevitable collapse of a pyramid scheme.

Pyramid schemes are not only bad for your wallet but also illegal in most parts of the world. So, if someone tries to sell you one of these scams, run away as fast as you can. Or better yet, report them to the authorities. You’ll be doing yourself and everyone else a favor.

The Pyramid Scheme is harmful 

Pyramid schemes are not only harmful to the participants but also to society and the economy as a whole. They can cause financial losses, legal troubles, mental distress, and damage to reputation.  

• Financial Losses: Only a few at the top benefit while those at the bottom end up losing their investments. In the case of WakeUpNow, 95% of distributors lose money. 
• Legal Troubles: A pyramid participant is a victim and a scammer at the same time, therefore they can face fines or even imprisonment based on how much they are involved in the scheme. 
• Mental Distress: When one knows they’ve been a part of a scheme, they will experience extreme stress. It is derived from financial losses, the feeling of being deceived, and the guilty feeling of deceiving others. 
• Reputation Damage: Being associated with a pyramid scheme can damage a person’s reputation, impacting their personal and professional life.

It is important to learn how to combat these Pyramid schemes through education, awareness, and deep understanding. Stay that easy-money trap at all costs!!

Is Affiliate Marketing a Pyramid Scheme? 

Affiliate Marketing is not a Pyramid Scheme. 

Affiliate Marketing is a legitimate way to make an income stream. Pyramid schemes, on the other hand, are scams. Members have to pay to join, then you have to scam people for more money.

Affiliate marketers are more awesome. They help you find the best products and services, and they create amazing content that you love to consume. Without them, the internet would be a boring and useless place. Many social influencers are survivable relying heavily on advertisers.

That’s why affiliate marketing is a great way to earn money online. You’re not building a house of cards that could collapse at any moment. You’re building a solid and valuable business that helps people.

But be careful, some scams hide under the name of affiliate programs. You need to do your research and avoid the rotten apples. In the next section, we’ll show you how to spot and avoid affiliate marketing scams.  

Multi-Level Marketing (MLM) is a Pyramid Scheme?

Multi-Level Marketing (MLM) and Pyramid Schemes are two different things.  Multi-level marketing is legal. However, caution is advised as there are companies operating a Pyramid Scheme under the guise of MLM. There are subtle but complicated differences between these two concepts and it takes a whole post for clarification on this topic. Check out our post on MLM Marketing for deeper insights.   

Why do people mistake Affiliate marketing for Pyramid Schemes? 

Affiliate marketing and pyramid schemes can sometimes appear similar on the surface.  

Commission Structure 

In both models, individuals may earn more if they recruit more. They seem to be similar on the facade but far different in essence.

In affiliate marketing, the commissions are only available when affiliates reach certain goals (in terms of sales, leads, or desired actions). In contrast, pyramid schemes allow members to earn unlimitedly, as long as the investment stream from new recruits continues. 

Lack of awareness

Many people simply have no idea about both concepts and their legitimate nature. Understandably, they will mistake affiliate marketing for pyramid schemes. 

Language overlap

Sometimes, the concepts, words, or terms used to promote two models can be similar, Which leads to confusion, especially for those who are not well-versed in marketing and business,  

Furthermore, aggressive tactics of affiliate marketing can create the impression of “get-rich-quick” schemes. This practice, by chance, reminds one of pyramid schemes that often promise high returns in a short period. 

Bad Experiences

Individuals who have negative experiences with affiliate marketing (such as poor products or services, and lack of transparency) may mistakenly generalize their experiences, assuming all affiliate marketing is similar to pyramid schemes.

Comparison: Affiliate Marketing v. Pyramid Scheme 

The comparison between affiliate marketing and pyramid schemes.

	Affiliate Marketing	Pyramid Scheme
Legitimacy	Legitimate.	Illegal.
Member income stream	Commissions from sales and performance.	Commissions mainly from new recruits.
Recruitment aspect	More about expanding the reach of a product or service.	Members are pressured to bring in new participants to invest money without a tangible product.
Joining requirement	No joining fee is needed but candidates must show their proven marketing achievements.	No specific requirement other than money.
Member terms and conditions	Must follow Affiliate industry standards and brand guidelines.	Not written clearly and carefully. Often give members little control over their lower-tier members.
Products or services	Products or services bring true value. Usually have a legitimate clear origin.	Products often serve as a cover and do not provide value.
Long-term viability	Sustainable without depending on a continuous stream of customers.	Always needs more members. Collapse when new recruits dry up.

What to check before joining a program?

So, you already have clues to point out the differences between an affiliate program and a pyramid scheme. Here is a checklist for you to consider before joining a program. 

Identify Red Flags: A red flag will be anything that is unusual and unrealistic. For example, a guarantee of extremely high returns or demand for a joining fee. 

An affiliate marketing program offers neither a promise nor an entry fee. 

Ask for details: Don’t be afraid to ask for details, evidence, or proof of the claims and offers made by the company/ representatives.

Check the commission structure: This information should be on the official website. We have to note that with AI involvement, it is easy to create fake a “Terms and Policy document”. Therefore, it is more effective to focus on the commission structure. 

Normally, scammers do not want to show a clear commission structure on their official website. It is a flexible amount so they can vary earning potential to catch as many people as possible.

Check the marketing materials: Scammers get poor marketing guidelines because of the lack of understanding of common industry standards. Additionally, their marketing materials (such as flyers, and banners about the product ) are poorly designed  

Check program backup: Check out the company/program lifetime and its reputation. You can Google it with the syntax “program name/ company name + “legit/establish/scam”. This is the most effective way to detect fraud or whatever project you are joining in. 

Please note that it is a high chance to be a scam if there is almost no content about that program on the internet, or search results show that the program has only been around recently.

Stay away at all costs!!!

If you are a rookie and have no idea how to start, follow our tag Affiliate Programs Review to have reviews and begin your affiliate journey with the most credible programs out there. 

Conclusion 

In this blog post, we have discussed the key differences between legitimate affiliate marketing and illegal pyramid schemes. We have also learned why people often confuse between two models and how to identify pyramid schemes by looking for some red flags.

Following our suggested steps, you can find a legitimate affiliate marketing program and protect yourself and your friends from fraudulent risks. 

Thank you for reading this blog post and we hope you found it useful and informative.

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