Is Affiliate Marketing A Pyramid Scheme? Breaking Down Misconceptions

If you are learning MMO, you have definitely come across affiliate marketing and pyramid schemes. But, is affiliate marketing a pyramid schemes? The answer is no, but the differences are subtle.

In this post, I’ll explain why affiliate marketing is not a pyramid scheme.

What is affiliate marketing?

Affiliate marketing is a legal business model and one of the most prevailing marketing strategies today. Over 80% of brands have at least one 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 commission.

There are 2 sides in affiliate marketing.

• merchant, who makes or sells the product. 
• affiliate helps refer the product to people and earn commission.

It’s a triple-win situation as the merchant gets customers, you get cash, and the consumer gets value

How does affiliate marketing work?

Here is simplified process of how affiliate marketing operate.

• Join an Affiliate Program: An affiliate (content creator, influencer, blogger, etc.) signs up for a brand’s affiliate program or an affiliate network
• Get a Unique Affiliate Link: The affiliate receives a special link that tracks sales or leads they generates
• Promote the Product: When you are already an affiliate, promote a product online. 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. 
• Earn a Commission: When someone clicks the link and makes a purchase, the affiliate gets a percentage of the sale.
• Repeat & Scale: The more traffic and conversions an affiliate generates, the higher their earnings.

Just it. Affiliate get paid when after they successfully refer people. No initial cost required.

Is affiliate marketing legal?

Yes, affiliate marketing is legal as long as it follows ethical practices of this industry. Unlike pyramid schemes, affiliate marketing is a legitimate business model because it focuses on promoting real products or services rather than just recruiting people.

There are legal requirement affiliates need to follow, such as Full Disclosure, Honest Advertising, Privacy Compliance. These regulation changes based on countries and regions.

Some other variant of affiliate marketing, such as high-ticket affiliate marketing is legal, too. It is still affiliate marketing but focus only on high-value products. However, it is often abused to sugarcoat a scam program.

What is a pyramid scheme?

A pyramid scheme is a fraudulent business model that promises high returns with little to no risk. It relies on recruiting new participants to pay existing members rather than generating real revenue through legitimate sales or services.

To be more specific, people in pyramid convince others to join them by promising huge returns on their money. However, the new recruits need to pay a fee 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. 

Pyramid scheme: How does it work? 

A Pyramid Scheme works like this: 

Step 1: Recruitment & Entry Fee

• A person (let’s call them A) starts the scheme and recruits others (B and C).
• B and C must pay a fee to join, which goes to A.

Step 2: New Recruits Must Recruit More

• B and C recruit their own members (D, E, F, G), who also pay fees.
• Most of this money flows upward to A and a small cut goes to B and C.

Step 3: The Cycle Continues

• The new members (D, E, F, G) must now recruit even more people to recover their investment and make a profit.
• As more people join, money moves up the pyramid to benefit those who joined earlier.

Step 4: Inevitable Collapse

• At some point, recruitment slows down because it becomes impossible to find enough new members.
• Those at the bottom cannot recruit anyone and lose their money.
• The scheme collapses, and only the top members walk away rich.

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.

Why Most People Lose in a Pyramid Scheme?

In most cases, the scheme became so big, leading to an inevitable collapse of a pyramid scheme. A pyramid scheme requires exponential growth to keep working. If every person recruits just 6 others:

• Level 1: 1 person (founder)
• Level 2: 6 people
• Level 3: 36 people
• Level 4: 216 people
• Level 5: 1,296 people
• Level 10: Over 362 million people (more than the U.S. population!)

Since the number of recruits quickly exceeds the number of available people, most members never make money and lose everything. Real case: In the case of WakeUpNow, 95% of distributors lose money. 

Signs of a Pyramid Scheme

Imagine a group promising massive returns—triple your investment in just three months. No effort required—just wait and invite friends to join this “amazing” program.

Sounds tempting, right? But here’s the catch—it’s a classic pyramid scheme. And those are a big red flag.

• You’re required to pay a membership fee or buy expensive starter kits to join.
• The scheme promises easy, guaranteed profits just for bringing in others.
• The company encourages building a team rather than selling products. You’re pressured to recruit friends and family.
• Some schemes sell low-value or overpriced products just to appear legitimate. Others don’t sell anything at all—only memberships.

Why Avoid Them? Pyramid schemes are illegal in most countries and almost always collapse, causing huge financial losses for those at the bottom.

Is Pyramid Scheme illegal?

Pyramid schemes are illegal because they rely on fraudulent and unsustainable business models that primarily benefit those at the top while exploiting new participants. 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.

Pyramid scheme is illegal in most parts of the world. So, if someone tries to sell you one of these scams, stay away. Or better yet, report them to the authorities. You’ll be doing yourself and everyone else a favor. Also, stay that easy-money trap at all costs!

Is Affiliate Marketing a Pyramid Scheme? 

Affiliate Marketing is not a Pyramid Scheme. Affiliates earn commissions by promoting real products, not by recruiting others. Pyramid schemes rely on endless recruitment with no real product value. In affiliate marketing, income comes from actual sales, making it a legitimate and sustainable way to earn money online.

From the legal aspect, affiliate marketing is a legitimate way to make an income stream. Pyramid schemes, on the other hand, are illegal. Members have to pay to join, then you have to scam people for more money. People mistake affiliate marketing to the illegal pyramid schemes. Actually, this is one of the most common misconceptions that affiliate marketers have.

Also, people often think Pyramid Scheme is Multi-level marketing. But they are also two different things.  Multi-level marketing is legal. However, there are companies operating a Pyramid Scheme under the guise of MLM. There are subtle differences between these two models and it takes a whole post for clarification on this topic.

Is high-ticket marketing a pyramid scheme?

High-ticket affiliate marketing is still affiliate marketing; therefore, it is not a pyramid scheme. Affiliates in a high-ticket program focus on promoting high-value products, not by recruiting others into a system. However, it is often abused by unethical marketers who prioritize recruitment over genuine product sales, making it resemble a pyramid scheme in some cases.

Why do people mistake Affiliate marketing for Pyramid Schemes? 

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

#1 – 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. 

#2 – 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. 

#3 – 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. 

#4 – 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	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.	Just money required
Member terms and conditions	Must follow affliate 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 an affiliate 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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