Whether you're a struggling college student looking for a way to make some extra money, a creative looking to explore blogging as a means to make money, or an established business looking to increase your customer base, you may have heard of affiliate marketing.
But is affiliate marketing a legitimate business model or just an illegal pyramid scheme?
In this blog post, we'll explore the differences between affiliate marketing and pyramid schemes so you can be able to spot pyramid schemes and make sure you're engaging in legitimate business practices.
Is affiliate marketing a pyramid scheme?
When it comes down to it, the answer is no; affiliate marketing is NOT a pyramid scheme. It's a legitimate business model that even the biggest of brands leverage to increase their customer base. So you should feel safe starting a business around this model.
What is a pyramid scheme?
Pyramid schemes are fraudulent business models that promise high returns to investors with little or no risk.
They operate by recruiting new investors into the scheme, who are promised profits for bringing in even more investors. The goal is to create a pyramid-shaped structure, where the initial investors are at the top and the new recruits are at the bottom.
The basic idea behind a pyramid scheme is that members at the bottom of the pyramid pay money to those at the top in the hopes of receiving a return on their investment. However, the returns are generated not from actual profits or earnings but from the funds contributed by new members. In other words, the scheme relies on an ever-increasing number of new investors to generate returns for existing investors.
As more and more people join the scheme, the pyramid becomes unsustainable because there are not enough new investors to sustain the returns promised to those at the top. Eventually, the scheme collapses, leaving most investors with nothing.
Pyramid schemes can take many different forms, such as investment clubs, multilevel marketing schemes, and online scams.
Regardless of how long they last, such companies always go under, losing millions in other people's investments.
Examples of Pyramid Schemes
a) Bernard Madoff's pyramid scheme
One of the most infamous pyramid schemes in history was run by Bernard Madoff, who operated a multi-billion Ponzi scheme for over a decade before it was exposed in 2008.
- Madoff's pyramid scheme was one of the most infamous in history
- He was sentenced to serve 150 years in prison
b) United Sciences of America (USA)
United Sciences of America (USA) was a company that sold nutritional supplements and operated as a multilevel marketing (MLM) company in the late 1980s. After the FDA looked into them for running an illegal pyramid scheme, they were accused of fraud and shut down.
This company was the first to sell its products with high-tech videotapes and by leveraging a well-known scientific advisory board.
Pyramid schemes prey on people's desire for quick profits and can lead to devastating financial losses. When looking for ways to make money online, be wary of opportunities that promise high returns with little effort, or those that require you to pay before you can earn.
What is affiliate marketing?
Affiliate marketing is a type of performance-based marketing in which an affiliate earns a commission for referring customers to another business.
This model has been in existence, even before digital businesses were a thing. A company would recruit sales agents to distribute their products, and for every sale they make, they would receive a given cut (commission.)
The affiliate typically receives a unique URL (link) from the merchant, and when potential customers click on that link, they are directed to the merchant's website where they can make purchases. When those customers complete their purchase, the affiliate will receive a commission based on the agreed-upon rates, without the customer having to pay more.
Affiliate marketing is becoming increasingly popular as it allows affiliates to earn money without having any products or services of their own to sell. It also provides merchants with access to new customer bases through online channels such as search engines and social media platforms.
So, unlike pyramid schemes, affiliate marketing is a legitimate business model that big companies including Amazon, Shopify, and Google (For business emails and other Google Workspace products) use to grow their businesses.
Examples of genuine affiliate programs:
- Content at Scale
- Bluehost web hosting
- Fiverr affiliate program
- Simplified affiliate program
- Amazon affiliate program (associates)
- Pictory AI
- Partnerstack affiliate network
- Simplified affiliate program
Differences between affiliate marketing and a pyramid scheme
a) Product Quality
Most pyramid schemes whip up simple and often unproven products, or bundle a dozen of them together, and sell them for say $47. The emphasis in the marketing of these products is on recruiting new members to join the scheme and make money by recruiting other members, rather than providing value from the product itself.
This creates an unsustainable cycle where only those at the top can benefit financially, while everyone else loses out by investing their time and money into something that won't provide any return.
With affiliate marketing, however, you aren't selling make-belief, but rather a real, proven, and working solution that addresses your audience's real pain point.
You get to decide which products you want to promote, thus protecting your online reputation by not promoting low-quality products.
b) Joining fees
Pyramid schemes require you to invest by purchasing a membership before you can participate. This often involves paying anywhere between $27 to $97 to join the scheme, with no guarantee that you will make any money.
In contrast, affiliate marketing is totally free to join. You usually need to sign up for an affiliate program with the product provider, wait for the approval and start promoting. before you can start promoting their products as an affiliate.
Pyramid schemes are often incredibly opaque, and the people running them don't provide any information about how they make money. They won't tell you what you have to do to start making a return on your investment, or even what kind of products or services they're selling.
On the other hand, affiliate marketing is a completely transparent business. Every company has clear instructions and terms for their affiliate programs, including:
- Commission rates
- How you get paid
- When you'll get paid
- Minimum payment threshold
- How qualifying clicks are counted, etc.
Most companies have some powerful reporting and affiliate tracking tools that give you an idea of how your promotional strategies are performing and how much money you're making.
This level of transparency is one of the greatest advantages of affiliate marketing, as it helps to build trust between merchants and their affiliates.
Affiliate marketing is a sustainable monetization model that can provide long-term passive income. It doesn't require a large initial investment, and it can generate income without having to put in too much effort.
The key is finding the right products or services that you're passionate about, so you can promote them effectively to your target audience.
With the right amount of dedication and implementation of proven affiliate marketing strategies, you can start earning a steady stream of passive income with this model.
With pyramid schemes, however, even if you manage to make a few hundred dollars during the early days of the scheme, you’re unlikely to make any long-term money. As soon as the number of recruits slows down, or the law catches up, the scheme inevitably collapses.
Why does affiliate marketing have a bad rep?
Unfortunately, there are some unscrupulous individuals who use unethical tactics such as spamming or offering false promises to make money with affiliate marketing.
These tactics give legitimate affiliate marketers a bad reputation and lead many people to mistakenly believe that all affiliate marketing is a pyramid scheme.
To build a legitimate affiliate marketing business, you need to stay away from affiliate gimmicks and focus on strategies that actually work:
- Build an audience around a given niche
- Write and publish authoritative content, or do YouTube videos
- Start doing review posts on some of the products that would benefit your subscribers
- You can also share affiliate links on social media platforms such as Twitter, Facebook, and Pinterest if you have a sizeable audience with these networks.
Affiliate Marketing & Pyramid Schemes FAQs
Can you make money with affiliate marketing?
Yes, you can make money with affiliate marketing. It takes time and dedication to build your audience, but it is possible. The key is to focus on helping people rather than just trying to push products or services down their throats.
What is an MLM?
Multi Level Marketing (MLM) is a type of marketing where sellers make money by recruiting more people to join their team and selling products or services. This can involve multiple levels of commission, meaning that the seller earns a percentage from all the sales their recruited team makes.
Is affiliate marketing an MLM?
No, affiliate marketing is not an MLM. With Multi-Level Marketing (MLM), you are typically required to buy a certain amount of products or services to make money. Affiliate marketing does not require any purchases like this; instead, it focuses on promoting other people's products and earning commissions from sales.
Is affiliate marketing illegal?
No, affiliate marketing is not illegal. It is a legitimate way to make money online by promoting products and services from other companies.
When promoting affiliate offers, however, you need to abide by the rules of the company you are promoting, as well as any laws and regulations that apply to your area. FTC, for example, requires that you disclose any affiliate links in your posts.
Can I use social media for affiliate marketing?
Yes, you can use social media for affiliate marketing. You can promote products or services on social media platforms such as Instagram, Facebook, Twitter, and YouTube. This can be a great way to reach potential customers and drive sales for the company you are promoting.
When using social media for affiliate marketing though, it’s important to follow all of the platform's rules and guidelines to avoid getting banned or having your posts removed.
Just note that some affiliate programs prohibit you from sharing your affiliate links in select social media channels, such as Pinterest. Make sure you read the terms and conditions of any affiliate program before promoting it on social media to ensure that you comply with their rules and regulations.
Can you get rich from affiliate marketing?
It is possible to make money from affiliate marketing, but it’s important to understand that success takes time and dedication.
Affiliate marketing is not a get-rich-quick scheme; instead, it requires hard work and patience. You will need to build an audience before seeing results. There are also other factors at play in achieving success such as producing high-quality content regularly and promoting the right offers to the right people.
What is the downside of affiliate marketing?
The main downside of affiliate marketing is that it can be difficult to get started and generate a good income if you don’t have the right tools, knowledge, and resources.
There are also risks associated with promoting products or services that may not be legitimate or could lead to customer complaints.
Another downside is that if the majority of your blog income earnings come from one affiliate program, your earnings could suffer in case the company cuts its commissions or even suspends the program altogether.
Is it worth becoming an affiliate marketer?
The answer to this question depends on your goals and the time you are willing to invest.
If you have an audience or a platform that can be used for marketing, such as a blog, social media channels, or website, then becoming an affiliate marketer can be a great way to monetize those efforts.
Affiliate marketing also offers potential long-term benefits in terms of building relationships with customers and creating passive income streams from commissions earned over time.
Is affiliate marketing a good side hustle?
Yes, affiliate marketing can be a great side hustle as it offers the potential to earn money while also having flexibility in terms of when and how you work.
It requires minimal start-up costs, which makes it an attractive option for those looking to supplement their income without investing too much time or money upfront.
What is the best way to get started in affiliate marketing?
Getting started with affiliate marketing is relatively straightforward. The first step is to find an affiliate program that offers products or services that are relevant to your audience and register for the program.
Once you’ve been accepted, you can start promoting the product or service through methods such as blog posts, social media campaigns, email newsletters, and other digital channels. It’s important to track your progress so that you can adjust your affiliate marketing strategy as needed.
Is high ticket affiliate marketing a scam?
No, high-ticket affiliate marketing is not a scam. These are affiliate programs that tend to offer higher commission rates, making them an attractive option.
However, note that these programs can be difficult to promote given the price points at which they're offered.
Pricing here is a major objection, so simple promotional strategies such as including links in your existing blog posts don't work. You need review posts, videos, and free online courses that help nurture your leads into conversion.
Is Clickbank a pyramid scheme?
No, Clickbank is not a pyramid scheme. It is an online marketplace where people can find and promote digital products such as ebooks, software, and online courses.
As an affiliate marketer on Clickbank, you are paid a commission for referring customers to the product or service that you’re promoting. You don't get any up-front payments from the company itself; instead, you're compensated based on the number of sales your referrals make.
The commission rates are set by individual vendors, and you can find products that net you as high as 70% in commissions.
Is Wealthy Affiliates a pyramid scheme?
No, Wealthy Affiliates is not a pyramid scheme. It is an online business platform that helps people learn and master affiliate marketing.
As an affiliate member, you get access to training materials, live webinars with experts in the field, and community forums where you can share your experiences with other members.
Wealthy Affiliate also provides tools such as keyword research and website hosting solutions that help affiliates optimize their campaigns for better performance.
The program also provides a vibrant online community of like-minded entrepreneurs and business owners who can offer advice and support.
While there's a membership fee, you get actual value for your money, as you get access to all of the above benefits.
The membership fees are also reasonable, and the program does not require that you pay any additional fees or participate in a multi-level marketing (MLM) system.
Affiliate Marketing Scams
While affiliate marketing is a legitimate way to make money online, there are also scams that use the term “affiliate marketing” to disguise their operations. These scams often focus on getting people to sign up for expensive programs or buy products without disclosing all of the facts.
It is important to do your research and always read the fine print before signing up for any program or buying any product related to affiliate marketing. Be sure you know exactly what you are getting into and understand how much you’ll be expected to pay for the program or product. Be aware of any hidden fees and make sure that you know what kind of support is available if you need help with your affiliate marketing efforts.
It’s also important to be wary of any offers that seem too good to be true, as these are often scams. If an offer seems too good to be true, it likely is, so stay away from any company or individual offering unrealistic guarantees or promises.
Popular types of affiliate marketing scams:
a) Fake products
A fake product scam is where fraudsters create marketing content, ad copy, and sales pages for non-existing products.
The scammers replicate the website of a legitimate product, market it and encourage people to buy the product, attracting the attention of people who are familiar with the genuine product.
To encourage quick sales, they often offer great discounts that are difficult to pass. Some of the companies that suffer because of this fraud include Clickbank.
Before you decide to join an affiliate marketing program, it is important to do your due diligence to ensure that you're working with the original creator and not a copycat.
b) Re-shipping scams
In a re-shipping scam, an affiliate marketer is asked to receive packages and re-ship them to another address. The person who sent the package pays for shipping and may even pay the affiliate marketer a commission.
The problem with this type of scam is that it’s often illegal and can be associated with money laundering or stolen goods. It’s important to never agree to ship anything to anyone.
c) Get-rich-quick schemes
Get-rich-quick schemes are common in affiliate marketing. Promises of making money without any effort, getting rich overnight, and working from home are all too common. Companies doing these schemes run overpromising ad campaigns, urging people new affiliates to join their networks.
These types of programs prey on people who are desperate to make money quickly, but the truth is that there’s no such thing as a get-rich-quick method to making money with affiliate marketing.
d) Spoof traffic scam
Spoof traffic scams involve sending out fake clicks or visits to an affiliate’s website. These scammers often use bots to generate a false impression of the number of visitors and clicks that are going to an affiliate’s site, but the truth is that these visits don’t result in any actual sales.
In summary, affiliate marketing is not a pyramid scheme but rather a legitimate way for businesses to increase their sales and for individuals to make money through commissions. With the right tools, strategies, and dedication, it is possible to take advantage of this opportunity and start earning some extra income through affiliate marketing. So if you're looking for a way to make some money online, consider giving affiliate marketing a try!