Is Affiliate Marketing a Pyramid Scheme?

Every day more and more people are drawn towards affiliate marketing. It’s one of the most popular and authentic sources of passive income of this generation.

If done right and with a bit of luck, you can make a lot of money and get rich. Such gain may make some people think that it’s some kind of a pyramid scheme. So, is affiliate marketing a pyramid scheme?

While the low effort and high gain nature of affiliate marketing may make it seem like a pyramid scheme but that is not the case. It is a tried and tested method of generating passive income. It usually goes like this; You choose your products and market them to potential buyers, If they buy, you get a commission. It’s as simple as that.

In this article, I am going further explain what a pyramid scheme is and why affiliate marketing is nowhere near to being one.

What Makes a Pyramid Scheme?

The pyramid scheme is a clever and sketchy business model that is illegal in most of the countries in the world.

The idea of the Pyramid scheme business model is very simple. You need to recruit some members for this scheme who will work under you to sell something. These members will have to pay a fee for joining the scheme.

Once they join, they will recruit new members on their own in the same way as before and so on. And as a result, the recruitment chain will keep on growing.

The pyramid scheme business model can be best represented by a pyramid structure. The structure starts with a single point on the top. As it goes down, the structure will keep getting wider and wider.

Take a look at the example given below to understand the pyramid scheme better.

Imagine Alex started a pyramid scheme business to sell something or rather pretend to sell something that has no intrinsic value.

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Here, Alex is at the top of the pyramid. He recruited two second-tier members for his business for a certain amount of membership fee and with the condition that they will have to recruit two new members each, with the same recruitment fee and same conditions.

The tier level of the members represents the steps of the pyramid. As more and more people are recruited, the tier level keeps increasing. And as a result, the bottom of the pyramid will keep getting wider.

A portion of the recruitment fees will be transferred to those who are at the top of the recruitment chain. So, you will notice that most of the money will be funneled directly into Alex’s pocket.

As the chain keeps getting bigger, the new members will fail to meet their recruitment target. This is the time when the pyramid scheme will collapse. At the beginning of this type of business, recruiters will tell you that their business doesn’t require that much effort and you will be able to earn a lot of money within just a short amount of time. But these are all just bluffs.

In reality, those who are on top of the chain are the only one who makes the most amount of money. But those on the bottom tier level, which is most of the people involved in this scheme, leave completely empty-handed. So, you can describe the “Pyramid scheme” as more like a “Pyramid scam”.

In pyramid schemes like Multi-Level-Marketing (MLM), or Ponzi scheme, selling the product is not the main concern for the business. Rather, they rely on recruiting more members as almost all of their income comes from the recruitment fees.

Why Affiliate Marketing is Not a Pyramid Scheme

Now that you know how a pyramid scheme works, it will be easier for you to understand the differences between affiliate marketing and a pyramid scheme. And this is why I have listed some reasons down below, explaining why affiliate marketing is not a pyramid scheme.

1. No Membership Fee Involved

One of the key differences between affiliate marketing and pyramid scheme businesses like Multi-Level-Marketing (MLM) is that you will not need to pay any sort of membership fee to join affiliate marketing.

The way affiliate marketing works is that you are promoting some product to potential customers. Whenever someone buys something using your affiliate link, you will get a commission. You won’t have to pay anyone anything for your service as most affiliate programs are free to join.

In the case of MLMs, you will have to pay a certain amount of membership fee to become a part of the pyramid scheme business hierarchy. Your recruiters will say that you are investing in the business through the recruitment fee.

But, in reality, this type of business never prioritizes selling its services or products. Their main income source is the recruitment fee whenever a new member joins the network.

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2. You Can Choose What You Want to Sell

When it comes to affiliate marketing you have unlimited freedom with which product you want to promote. But this is not the same with pyramid schemes.

In the case of pyramid scheme businesses, you will invest in some product or service that your recruiter is selling. It doesn’t matter whether the product is good or you are not interested in that product.

And if you are not interested in something, it will be hard for you to sell that service or product.

Affiliate marketing is not like that. In affiliate marketing, you can pick whichever product you want. And if you have good knowledge about the product, it will be much easier for you to promote that thing to potential customers who are already searching on the internet for this product.

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3. Earn Money for Each Sale You Make

In affiliate marketing, you will earn a portion of the sales money for each sale that is made through your affiliate link. You don’t have to pay anyone anything and joining affiliate marketing programs will cost you nothing.

In the case of pyramid scheme businesses, you can keep only a small portion of the money you make through recruiting new members. The rest of the recruitment fee will go to the pocket of those who are at the top tier members of the company.

4. You are in Complete Control

Affiliate marketing requires you to promote a certain product of your choice. Review blogs, videos, social media posts are great ways to promote your affiliate products.

You won’t have to promote something that someone forced upon you, unlike the pyramid scheme. You will have complete freedom in this regard.

Also, the pyramid scheme requires you to interact with potential members personally. This may involve using underhand tactics or methods that others may find annoying.

But in affiliate marketing, you will be mostly conducting business online. And you will only communicate with people that are interested in your product through your promotional content like blogs or videos.

And you can track the number of sales through your affiliate links. These affiliate links are unique to each affiliate marketer. So, brands and companies can easily track how customers find their product and reward the affiliate marketers by giving them a portion of the sales. In short, you will be in complete control of your business.

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Affiliate marketing is marketing certain products online. It is legit and people are making money from it every year. On the other hand, many countries have banned pyramid schemes and for good reasons. You don’t know where your money is going and why. You don’t know whether there will be any return. Such is not the case with affiliate marketing.

In this article, I’ve tried to explain in-depth on how a pyramid scheme works and answered the question “Is Affiliate Marketing a Pyramid Scheme?”.

I firmly believe through this article I was able to clear every confusion you had about affiliate marketing seeming like a pyramid scheme. Thanks for reading till the end. Have a great day.