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What is the difference between Multi-level Marketing (MLM) and Pyramid schemes? This knowledge will be helpful the next time you are approached to listen to a pitch. To start they are based on different commission plans and selling concepts. An MLM is a legitimate business model if they sell products or services. There are guidelines established for MLMs to be legal.

MLM vs Pyramid Scheme

Pyramid schemes make money by selling the right to recruit, basically exchange of money. You buy in to the program, you have to recruit a number of people at a buy-in amount. If you get the required number you make money. At some point there is not enough money to pay people. Usually you need to be the first in to make money.

When the network marketing model is based on individuals being paid for recruiting new people rather than for selling a product or service for the company it’s considered to be an illegal pyramid scheme. These companies or pyramids schemes promise large profits but as recruiting multiples, it becomes impossible to recruit and participants lose money.

You need to stay away from Pyramid schemes. I have seen people loss their job and prosecuted for being part of a pyramid, lossing their homes and families. They were trying to ‘get-rich-quick.’

Three men watching a presentation by another man.

 

 

MLM

Multi-level Marketing also called network marketing uses a direct selling method of distributing products. There is a pyramid structured network of distributors, kind of like a family tree. Those involved selling produces are called distributors, who typically earn commissions on their sales and the sales of their down line recruits. The distributor (you) recruits additional distributors, this is your down line. The commission plan determines the number of levels down you earn commissions.

At a certain level you are no longer earning commission on the down lines’ revenue of sales. Most up line will continue to help the down line distributors (even though they won’t make money for their efforts) because it creates excitement adding to the positive volume of sales.

The fact these distributors are selling produces or service makes the operation legitimate. When distributors and customers use and sell products or services which improves the quality of their lives it is a win-win for everyone.

Most people see the MLM structures as a pyramid schemes. A pyramid structure is considered legal based on their making profits from the sales of products and services not from recruiting new distributors. I don’t see it that way.

Some examples of successful MLMs are Amway, Avon, Mary Kay Cosmetics and Tupperware to name a few. I am not telling you not to get involved in any of these companies’s, I want you to be aware of their strategies to be successful and how they use networking to sustain business.

Network marketing is a business model which uses a network of distributors to grow a business. There are many types of network marketing including single-tier, two-tier and multi-tier.

Single-Tier Marketing

In a single-tier network marketing, you sign up for a company’s affiliate program to sell their product or services. You are not recruiting other distributors, and all commissions come directly to you for sales. Avon, beauty products, uses single-tier network marketing. We see these distributors having home parties, in the evening or weekends, to allow customers to sample products.

Two-Tier Network Marketing

A two-tier network marketing system does involve some recruiting, but your pay is not solely dependent on recruiting. You get paid for your direct sales and the sales of the distributors you recruit to work under you.

Multi-level Marketing

MLM is a distribution marketing network which contains two or more tiers. Some MLM compensation plans pay three or more tiers deep, so there are incentives for recruiting. Examples of MLM businesses include Amway, Life Leadership and Thrive Life.

Pros of MLM

  • Up line training. If you have an experienced up line, who are near you and take the time, to provide you with training and feed back you have a higher potential of success.
  • An established company. If you select a company with a track record of many years of operation, you have some respect at the start. For example, you choose to work with a brand like Mary Kay everyone has heard of the brand.
  • Usually there is a nominal starter fee. The starter kit may have training items and product to sample and use as samples. The lower start up cost makes it easier to get involved.
  • Flexible work schedule. Usually working in the evening or weekends, when potential customers are home from work.
  • Home parties. Some people find this as a way to be around adults (stay at home parent). And can be enjoyable.

Cons of MLM

  • It takes time to build a network of distributors to make money.
  • Having to approach family and friends.
  • Up line is not close enough to provide training and support.
  • The expense of company or team conferences.
  • Compensation plan is confusing. How do you know you are receiving the right pay?
  • You have to have a minimum sales each month to earn compensation.
  • To easy to quit.

Starting an MLM

The first thing you need to consider is what product your comfortable using? There are home products (plastic storage containers, candles, air fresheners, soap, etc.) and cosmetic company’s using the network marketing system for distribution. If you use the product or service, and you like it enough to talk to your family and friends about it. You have taken a big step to be happy with the company you will sell for. You can not be embarrassed to say the name of the company you are representing or selling product.

I was an Amway distributor, years ago, I didn’t want to say Amway when I talked to people.

The next major hurdle will be to find an up line you are comfortable with. They need to be someone you can easily go to for help. They need to have good and frequent training on how to talk with people and the different aspects of business.

You need to decide you are going to be committed. Stay the course.

Woman drinking coffee while viewing a laptop

Affiliate Marketing

Affiliate marketing is an excellent business model if you don’t have a lot of money to get started. It is a single-tier network marketing distribution system. You pick a niche, a specific area you will focus on.

You apply for a companies affiliate program and promote their product on your website. Do product reviews. Give advice about an area of life (homeschooling, parenting, hobby, camping, etc).

You might need to work at your full time job, this will be a flexible way to get started your own business. Or you want to be a stay at home parent and make extra money.

You don’t have to produce, stock, or ship product inventory.

Affiliate marketers create traffic and have ads which refer clients and customers to big name company websites. When a product or service is purchased, the affiliate marketer gets a percentage of the sale.

A concern of affiliate marketing is the thought and promotion from so-called experts of it being a ‘get-rich-quick’ scheme. The belief that affiliate marketing can be grown with little effort is a scam. It will take six months to a year before income begins to come in. And this income will not replace your 9 to 5 jobs for maybe two years of writing content on your website.

It’s not a question of whether affiliate marketing is a viable income option. It is!

But whether you can make affiliate marketing work for you.

Pros of Affiliate Marketing

  • Most affiliate programs are free to join. Your costs are usually determined by your referral and marketing methods.
  • No need to create a product or service, you are referring people to one that already exists.
  • You don’t have to stock or ship products.
  • Flexible hours and work location. You need a computer and access to the internet.
  • Passive income potential is based on your work efforts.
  • You can continue your current job while you build your affiliate program.

Cons of Affiliate Marketing

  • It takes commitment of time to generate the amount of traffic needed to produce income.
  • You are depended on the company (business) selling the product or service.
  • Some company’s fail to pay their affiliate marketers.
  • It is a very competitive market. Great affiliate programs will have many affiliate marketer doing what you want to do.
  • The customer belongs to the merchant.

How to Start Affiliate Marketing

You need to choose the right affiliate program. There must be a good fit between you and the merchant who you are making the effort to promote. There are many affiliate programs tied to well-known company’s like Amazon, Google and Apple. There are networks who represent many big name company’s: CJ Affiliate, ShareASale, ClickBank, Rakuten Affiliate Network, 2Checkout, and Awin, etc. These companies provide affiliate services for well-known company’s like Shop Disney, Dick’s Sporting or Dickies.

One of the best products to consider is digital product. Digital information products have much higher commissions, from 10 to 75%. Physical products usually only offer commissions under 5%. Also, they can be easier to sell because customers get instant access and immediate gratification when purchasing a digital information product.

There are many affiliate marketers using Amazon.com. Just about any product anyone needs is sold by Amazon. The commissions are lower than digital products, but there are lots of products. Many people use Amazon to buy the things they need, so they are trusted. An affiliate can have a much higher volume of business by using Amazon. A customer can enter Amazon for the item you promoted and leave buying something different, with a higher price, and you earn the commission regardless.

The key to success with affiliate marketing is to get started and always learn something new every day. Grow your business by helping your target audience.

If you are not internet savvy there are company’s who provide training. Research them carefully. If they don’t offer a free trail, they might up sell everything you need to grow your website. Do your homework.

If you are considering affiliate marketing. You will want to look for a free trial.

Read my review of Wealthy Affiliate. ==>Click here.

They have a seven-day free trail!

Good luck,

David

  1. Wow, great job you have put in here. To be very honest I didn’t know some of the things you have written here especially concerning the relationship that there is between the MLM system and they pyramid schemes. I see that the only difference there is that one has products to sell while the other is based on recruiting. I also understand that making money is still possible with MLM. Affiliate marketing still is the best of the three compared here though it also has it’s own disadvantages, making money is still possible in the long run. Thanks for sharing this eye opener.

    • You have to be careful with Pyramid schemes, I have seen where you have to pay $5,000 to get in. In order to earn your $5,000 back you have to get 10 people to invest $5,000 each. I know of people who have been found guilty of fraud for starting this and done prison time.

      You can make money with any of the options I described, with putting in a lot of work. I agree with you the best option is affiliate marketing. Build your on niche using a website and attach affiliate links to companies selling products based on your niche. 

      Thanks Henderson,

      David

  2. Nice post to compare all three business models. As a person who has tried the MLM and also currently running an affiliate marketing business, I think it is good that you agree with me that affiliate marketing is just the best because it beats every other one. One doesn’t need any upline or downline or need to recruit anyone to make money from it. Nice post here.

    • Thanks John,

      The whole idea about starting a business is to be your own boss. As the owner I shouldn’t have to answer to anyone. My hope is to provide the information people need to make a good decision before starting a business they don’t want to continue. I have done that to many times.

      It is good to help other people along the way, pay it forward.

      Thanks,

      David

  3. Thank you for this eye opening post 🙂
    Like your neutral but insightful tone for the topic. MLM system and pyramid schemes always sounded too exhausting and difficult to understand (sounds that there is a catch in every step) to me, so I never went deep to it. You clarified it quite well and made it understandable (finally!) On the other hand, affiliate marketing is easy to understand but what keep most people away from it is commitment, patience and persistence. I agree with you in every sentence you wrote.
    Thanks again for sharing your thoughts.

    • I am glad you were able to better understand the MLM system. Sometimes when writing you hope the message is clear, but you never know for sure until someone else reads it.

      I know many people involved in MLM companies, it works for them. There must be something they need and get from the system. It does not work for me. I don’t like having to approach my friends and family about something I know they are not going to be interested in.

      I had someone tell me they would not talk to me about affiliate marketing because it was network marketing. I was surprised by his comment. I did some research and found, he was right. But all businesses are a network marketing. A store on the corner puts a sign up with their name, hope people will come in and buy something. They are networking with the community. No one is pressured to buy when they walk in.

      Affiliate marketing is single-tier network marketing system. The website depends on traffic, visitors, to stop in, read, and hopefully buy a product we reviewed and recommended. The website owner is the top of the pyramid, each visitor in the base of the pyramid. There are no more layers to a single-tier network marketing.

      Thanks for your comment,

      David

  4. Hi, David.
    Thanks for sharing your views on MLM and Affiliate Marketing.
    While Multi-level marketing is intended to get a commission through the sale of a company’s product or service, Affiliate Marketing provides commission through the sale of product or service through a niche website. In my personal opinion, Affiliate marketing is a better option. Though it takes more time to earn money but in the long run, success is much bigger than MLM. We need to be consistent in learning new skills and writing helpful content.
    Warm Regards,
    Gaurav Gaur

    • Very true Gaurav,

      With affiliate marketing you control whose products you want to sell. If one of your website visitors has a bad experience buying a product, you can stop the affiliate program relationship with that company. And apply with another company. In an MLM your stuck, unless you quite.

      We should always try to learn new skills. 

  5. Thanks for the information. I think it’s great that the potential of the business relies heavily on the amount of work you put into it. There are no big promises. It’s a practical way to make money On the backs of these huge conglomerate companies that have thousands or hundreds of thousands products and services.
    Does the free trial come with training?

    • The free starter week includes 2 training classes, which has 10 lessons each. During this lessons you will have a website started. And articles written.

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