Is Affiliate Marketing A Pyramid Scheme?

Is affiliate marketing a pyramid scheme?

I see it all the time, the question, “is affiliate marketing is a pyramid scheme or some sort of scam?” 

You’ve probably seen that assumption in the comments sections of social media posts that are about affiliate marketing.

Tiktok comment on an affiliate marketing post accusing the business of being a pyramid scheme

If you are someone who believes that it is, I honestly can’t entirely blame you for that.

There are a lot of new members of so-called “affiliates” who are giving it a bad name and continue to do so.

But the truth is that affiliate marketing is a lucrative business model that highly benefits the affiliate, the vendor, and the consumer.

Since you’re searching for this information, I probably safe to assume that you are just looking to understand what affiliate marketing is, how it works, and if what all of these people on social media are saying is legit. 

If you are one of those people on social media and you are seeing a lot of the comments I’m talking about on YOUR posts, then pay attention, because your marketing probably sucks. 

What Makes Me Qualified To Talk About This And Why Should You Trust Me?

Definitely a question you should be asking, you are probably here because you couldn’t trust the person who told you about the benefits of affiliate marketing.

The reason you should trust me is because I have no agenda here other than to provide you with an accurate answer to the question, “Is affiliate marketing a pyramid scheme?”

I’ve also been a full time affiliate marketer and affiliate marketing coach for the past 2 years. I’ve received this question many times before and in many forms.

I’ve even been put on the spot during live coaching calls to explain the difference between an affiliate marketing program and your typical Pyramid or Ponzi scheme and MLMs.

During those 2 years, I have only had someone accuse me of peddling a scam or a pyramid scheme a handful of times, whereas on some other marketers’ content, you will see it on damn near every post. 

It’s all in the marketing strategy, which I’ll be covering today in detail.

First Off, What is Affiliate Marketing?

Affiliate Marketing is a process where someone with an audience or marketing skills can promote a company’s products or services, and when that affiliate generates a sale they earn a commission from the company.

When you join an affiliate program, you will get a unique link from the vendor, also known as your affiliate link. If someone clicks on this link and then purchases, they can track the sale back to you and then you will be paid. 

It’s easy to see how this can be perceived as an MLM or pyramid scheme because as the consumer, all you may see is someone pushing a product or a course to try and make money.

Think of it like this, have you ever bought a car from a dealership, and before you drove away they offered you money if someone you know comes in and purchases a vehicle?

As the person who just bought the car and then sent your friend in, you are doing the same thing that an affiliate marketer does. 

Infographic of dealership offering cash incentive for referrals.

It benefits you financially because you’ll get paid the agreed-upon amount, it benefits the dealership because they sell another vehicle, and it benefits your friend, the consumer because they trust your recommendation and can avoid a bad experience. 

The main difference is that affiliate marketers are doing this online at a much larger scale. 

Instead of just reaching out to friends and family for a quick sale as you’d expect in Multi-Level Marketing, they are generally creating content on social media to advertise these products and cast a much wider net.

Everyone on the internet is an affiliate marketer. Bloggers, Influencers, YouTubers, and even large companies are affiliate marketers.

Oprah Winfrey also participates in affiliate marketing. If you’ve ever looked at her “Oprah’s Favorite Things” list, it is a complete list of affiliate products. Just go to the list and scroll down to the footer, you will see a disclaimer that proves it. 

Oprah's Favorite Things list of affiliate products, showing the top of page and the affiliate disclaimer.

The reason she does it is because she has a massive audience of people who value her recommendations, they don’t hesitate to purchase these things when she recommends them, and she uses affiliate marketing to monetize those recommendations. 

What Is A Pyramid Scheme?

A pyramid or Ponzi scheme is very different and highly illegal. While you may run across this on social media, the people pushing these things aren’t affiliates, they’re scammers.

A pyramid scam relies on recruiting investors to buy into the scheme, then that money gets kicked up to the higher-ups in the various marketing and pyramid schemes.

But there is no product or service involved, simply the promise of earnings for recruiting more people.

Then the only way for someone at the bottom to make any money is for them to recruit more people to buy in. At that point, that person is no longer at the bottom, and that money gets spread up the pyramid. 

Now when your recruits can earn money and bring in more investors, you are earning money from their efforts.

This is a scam.

There is no product or service rendered, there is no legally operating company to benefit from it, and no guarantee of earnings.

Every pyramid eventually collapses because you would need an infinite amount of recruits to keep the scheme going.

What About Multi-Level Marketing (MLM)?

MLM businesses in a lot of cases are legitimate and rely on a few fundamental principles. 

They are easily perceived as pyramid schemes and operate in a similar fashion, the main difference being that there is an actual product or service being provided.

With this model, consumers are still benefitting from purchasing legitimate products from distributors.

There are 2 sides to a legitimate MLM business model.

There is the selling and delivery of the product or service the company provides and there is the business opportunity side of becoming a distributor.

For example, Amway is the most successful legitimate MLM company still in business today.

When IBO’s sell Amway products, they put a markup on the products they sell, but there are additional earning opportunities.

You will also become eligible for bonuses based on how much volume of sales you produce personally.

In addition, there are growth incentives for recruiting new members and building a team of people who will also sell Amway products. As the recruiter, you will need to mentor these people so they have a high performance with their business. The higher the sales volume of your team, the higher your bonus is.

Image to represent a Pyramid Scam

But this is not affiliate marketing because you are actually starting and running a small business that usually has to track inventory, provide a service, and deliver products.

As an affiliate marketer, your only job is to connect a buyer to a purchase, there is also no team building.

Why Do People Think Affiliate Marketing Is A Pyramid Scheme?

Affiliate marketing is commonly assumed to be a pyramid scheme based on a few bad practices that some affiliate marketers use to get more affiliate sales. 

There are affiliate marketers who will resort to making false claims about a product to get sales and they use a get-rich-quick narrative.

This is mostly apparent when affiliate marketers are promoting products in the wealth niche that are designed to help you make more money. 

It could be a software product, an agency of some kind, or even a business training course.

But instead of marketing the products and services for what they actually are, they market them by making huge promises and highlighting the rare cases where massive earnings did become a reality.

For example, I learned how to become a successful affiliate marketer through a course that I purchased that teaches all of the strategies that are working as well as the step by step for setting up your affiliate business. 

When I market this product, I talk about the value of education, the simplicity of the course structure, the high level of support provided when I have questions, and most importantly the expectations that my customers should have when purchasing.

This usually involves telling my personal story and journey in various formats.

Others might market a similar product by talking about how they’ve earned a lot of money from the product and set unrealistic expectations. 

Telling their audiences that they will make money, it will come easy, and it will come fast are just some of those misleading expectations. This is a result of people not following the affiliate marketing compliance rules because they think these strategies result in more sales. 

This also gives affiliate marketing that “team building” feel that is associated with MLM’s.

Comments from a tiktok video as a result of misleading marketing efforts

Then what happens is people might purchase that product with that unrealistic expectation and resort to calling it a scam or pyramid scheme when they find out otherwise.

When you come across one of these social media marketers making these claims, I would do your due diligence on the website of the company they are promoting and inquire with the company directly to address any concerns.

If you are unable to reach the company or find answers to your concerns, you may have dodged a bullet.

The Final Verdict

Hopefully this clears things up a bit. 

Always do your due diligence to make sure what you are investing in isn’t a scam, a lot of times the best way to do that is with the company that creates the products directly.

Avoid anything that promises massive returns but doesn’t clearly explain how your earnings will be made.

When you come across a legitimate business model or online business opportunity, all of the information about how you will be paid and what is required of you will be clearly stated and transparent.

You might be thinking, what is a good legitimate option for learning affiliate marketing?

Granted, there are a lot of courses out there that teach this information and I haven’t gone through all of them, but I did find the best ones and lay out my experience with them.

I have also written a complete getting started guide that is free to view on this blog.

When you search Google for “Best Affiliate Marketing Course,” you’re going to find lists of programs, all accompanied by affiliate links.

I can only speculate, but I highly doubt those bloggers went through ALL of those recommendations and can give an honest review. 

In my post on the best affiliate marketing courses, there are only 3 options there. 

The reason for that is that each one specializes in a specific form of affiliate marketing, and I have personally vetted each one and can vouch for their methods unless clearly specified.

If you’re looking to get started with affiliate marketing and a bunch of social media influencers are what sent you here, I would definitely recommend giving that article a read before making any purchase decisions. 

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