In this network marketing vs affiliate Marketing comparison post, we'll examine the pros and cons of each method, so you can see which path provides the most bang for your buck.
When you're looking for ways to make money online, there are two methods people often argue about, and that's networking marketing and affiliate marketing - who wins? Which method is better?
We'll examine the requirements, the pros and cons of each method, as well as their income potential. Most MLM companies promise big-bucks, fancy cars, and all sorts of exclusive rewards. Maybe it's all for show?
Are you a regular reader? Chances are you already know which method I recommend. But if you always wondered, "Why does he recommend this?" this post should clear some of the air.
Hint: I recommend affiliate marketing because it's clearly the best choice. Most MLMS aren't even worth thinking about.
First we'll run through both methods, and then we'll compare them, and I'll show you exactly why I know affiliate marketing is the best option.
Let's start with the basics.
What is Multi-Level Marketing?
The description for Multi-Level Marketing (taken from Wikipedia) is this:
Multi-level marketing (MLM), also called pyramid selling, network marketing,and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company's products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
That's quite a mouthful, even I'm not sure what that means, and I have been writing about these companies for years!
In short, multi-level marketing is a payment scheme where you not only sell a product for a commission but also earn rewards by building a sales-force under you. In turn, the sales force recruits more people under them, and you build a pyramid of people under you. The idea is to have everyone under you, so you don't have to do any of the hard work.
The companies encourage you to invite a handful of people, and get them to invite a handful of people as well, repeating until you run out of people to invite.
Multi-level marketing companies go by various descriptions, such as "Direct-Selling", "Network Marketing", "Invitation Marketing" or "Matrix-selling" but the structure is always the same.
Affiliate marketing is different, and we'll talk about the exact differences later on in this network marketing vs. affiliate Marketing post.
What is a Pyramid Scheme?
Let's talk about pyramid schemes for a second.
Here's how they work:
Someone approaches you with a pitch saying how you can double or triple your investment in a couple weeks. "Turn $100 into $10,000 dollars", they'll say.
The people who promote these schemes usually tend to keep details as vague as possible, like this post which is commonly found on social media:
These schemes are often quite tempting because who can say no to free cash? It doesn't sound too bad, right? People fall for them all the time. Maybe you have, and that's okay, we all make mistakes.
What they don't tell you is to earn that $10,000 you need to promote the scheme as well, by harassing your friends and family.
To earn the cash, you need to convince everyone you know to pay to participate as well. For example, convince two or three other people to join under you, then convince those people to get people under them, and so on.
Thanks to the Internet, I'm constantly getting at least 20 new leads per day without doing any cold calling, hard selling or recruiting.
I've already achieved financial independence after working 1 year in affiliate marketing by earning a 4-Figure Passive Income Online.
If you don't recruit the right amount of people, you won't earn any of the cash that was promised. So you're down $100 bucks. (We're just using $100 as an example here, most pyramid schemes require a lot more than that to join, think $10,000 +)
Pyramid Schemes are illegal.
The reason pyramid schemes are illegal is because there are no goods or services offered, only the promise of more cash.
Most pyramid schemes will promise a share of the total money the scheme generates, but only if you buy into it, and get other people to do the same. So the only incentive is the promise of more cash.
MLM Companies & Pyramid Schemes:
What's the difference between a multi-level marketing company and a pyramid scheme? See, Multi-level marketing companies use the exact same pyramid-scheme structure, but with a few changes.
The main reason MLM companies are not illegal is because they do have some sort of product, and earning is not solely based on inviting new people.
Multi-level marketing companies have products.
Granted, the quality of these products is - usually - questionable, and many MLM companies have been charged with being pyramid schemes in disguise. Not to mention the fact that most of the products are overly expensive too.
Multi-level marketing companies are usually legal.
Multi-level marketing companies use the pyramid scheme structure, but with the option of making money through product sales. Pyramid schemes only offer one way to make money - inviting more people.
MLM's are NOT a GOOD IDEA:
I'll be the one to say it, working for a MLM company is a terrible idea.
If you're working for a MLM company and you're rolling your eyes at this, thinking "Here's another guy saying MLMs are pyramid schemes, trying to discourage hard-working business owners!" I'v got some facts for you.
Don't get the wrong idea. I fully support business owners, and my number one product teaches you how to build a legitimate online business. What I don't support is predatory schemes that prey on people.
Here are some reasons why working for a multi-level marketing company is horrible idea.
1. Not Enough People on the Planet.
There's also the fact that pyramid-selling is not sustainable because at some point you run out of people to invite.
After 13 cycles of each member inviting two new members, the amount of people who join will surpass that of the world's population. The math does not check out. And some schemes are based on multiples of three or four, which is even worse.
2. Very Flimsy Foundation.
The majority of MLM companies are based on an incredibly flimsy foundation, right in the no-mans land between pyramid schemes and legitimate businesses.
These companies are often shutdown or involved in major lawsuits. What happens if you spend years building a down-line and moving up in the ranks, only to have it all disappear when the company shuts down?
The Federal Trade Commission (FTC) is an agency created to protect consumers from fraud, in all areas of business.
In most cases, if the FTC receives enough complaints about a company or product, they'll investigate the company, and if the investigations uncover signs of fraud (including pyramid schemes) the FTC can take legal action. The FTC can also shut down a website entirely.
Most MLM companies will justify their pyramid structure by claiming it's not a pyramid scheme because members can make money promoting the products or services, not only by recruiting new people. They can choose not to recruit.
It's the core difference between MLM opportunities and pyramid schemes. Though that is true, the amount you can earn only selling the products is far too little, especially considering your expenses.
If you spend a few minutes reading any MLM's compensation plan you will see the focus is on recruitment. Most ex-members reveal the focus is mainly on recruiting new people as well, it's where the money is at.
In short, you won't be able to make much money with a MLM opportunity, unless you can recruit a ton of people under you, and somehow manage to convince them to do the same.
A study done by the FTC on MLM companies reports that out of 350 MLMs, 100% of them were recruitment-based.
4. Pay to Play
Every MLM company charges a registration fee, which often comes in the form of packages you are required to purchase. These packages usually include "Sample Kits" that you can use to show friends and family the products.
They'll defend this fee by claiming every business owner needs to invest some cash into the business to get it off the ground. Once again, this statement is true, but buying $1,000 worth of over-priced leggings, health supplements, or essential oils, is not a great business investment.
More often than not, you have to purchase your own supply too, so that leads to more cash down the drain.
5. Monthly Sales Requirements
Another issue with MLM companies is they almost always require you to reach a certain sales quota for the month. If you don't reach the quota you won't be able to progress with the ranks, and you'll miss out on a higher income-potential.
It's not uncommon for MLM enthusiasts to have garages or rooms full of products they bought to meet the minimum sales quota.
To reach the milestone you either need to purchase more product yourself, or make more sales. Since most people who join these companies are not the best sales-people, their sales numbers are usually low, so they resort to buying the product for "Personal Stock".
It doesn't help that most MLMs dont have great products to begin with.
More money down the drain.
Example: Pure Romance
One funny example here would be the company Pure Romance, a MLM company in the adult-toy niche.
In this company, distributors are required to purchase $200 worth of toys every two months, to remain active.
Can you imagine having a garage full of adult-toys? Crazy!
So not only do you have to pay an admission fee or buy a package, but also meet a minimum personal sales quota to remain active. Even if you do make some sales, it won't be enough to cover your expenses.
Speaking of income...
6. 99% of Distributors Make $0
Did you know that 99% of people who join a MLM company fail to make a single dollar? It's true. Oddly enough, according a study done by the FTC, MLM companies are actually less successful than flat-out pyramid schemes.
Did you know the chances of making money in a MLM company are actually worse than a pyramid scheme? That's right. In a MLM company, about 99% of people fail to make a profit.
Meanwhile, in pyramid schemes, 90% of people fail to make any cash. In other words, if you join an illegal pyramid scheme your chances of making money are actually 9% better than joining a legal MLM company.
How is that legal?
We'll talk more about how much money people make in MLM schemes later on in this resource.
As a heads up, if you're thinking about signing up with a MLM company, I recommend taking a moment to search for their income disclosure statements. Most of the companies will straight up refuse to provide this information because they know it's unattractive.
7. Cult-Following and Seminars
The better known MLM companies will almost always host massive seminars and sell tickets for thousands of dollars, claiming it's a way to learn the inner-secrets of building a business. Unfortunately, these seminars are usually more like motivational speeches, with a dramatic flair.
You'll have various speakers share their amazing results (without providing any actual proof, of course) and how the product or company changed their whole lives and gave them everything they ever wanted. Lamborghini, mansions - you name it, mostly theatrics and fluff.
In some cases, the company will hire a celebrity to read a script for publicity. It doesn't change the fact their income opportunity is terrible. But people eat it up regardless.
8. Alienate Your Family and Friends
When you enroll in these opportunities, their training material will suggest you share the flyers and other promotional items with your friends and loved ones. After reading the above, do you want anyone you care about to work for these companies? I know I wouldn't. Nevertheless, that's who the companies want you to target first.
What's the problem here? Well, if you have had loved ones trying to force you to join their new "amazing" offer time and time again, chances are you know what it feels like. I doubt you want to speak with them.
That's what happens when you forcefully promote your offers to people you know, eventually they'll stop replying to your messages all-together, and soon you'll find nobody wants to be around you. Being alienated from everyone you know doesn't feel great, especially when it's your fault.
9. Bleeding Cash
Now, this is one of the more important aspects of MLM companies you need to know. The fact is working for a MLM company as a distributor is expensive. Oddly enough, instead of paying for your marketing services, they actually charge you to promote them. How backwards is that?
You're probably wondering:
How do they charge me? It's in all the little fees. The admission fee, the business packages, and the monthly sales requirements. Not to mention the other monthly fees such as website hosting and promotional supplies.
Additionally, the products themselves are overly-priced, even though they're no different (and often inferior) than others in the marketplace.
Even if you do make a few sales, that's not profit. You'll have to make a lot of sales to cover all the above expenses, which is the main reason 99% of people fail to make a profit. It's like trying to fill up a cup with multiple holes in the bottom.
Is It a MLM? Check This:
If you're wondering if a certain company is a MLM, this checklist should clear things up for you. As someone who reviewed hundreds of these companies, I can tell you none of them are actually unique. It's not a revolutionary new business.
They all have the same things in common.
MLM companies like to create these overly-complex rewards plans (or compensation plans) that describe the way people will earn money from the system.
If you can get through all the jargon, most of the time, the system is based on two concepts; making direct-sales, and recruiting more people under you. But the money is in recruiting new people, the commissions from sales is far too little to sustain you.
Here's How it Works:
To join the plan you'll need to pay a fee, which varies depending on the company, some charge $10,000 or more to get started. These are usually called "Enrollment Fees" or "Admission Fees". Chances are you'll need to purchase a "Package" from the company to get started as well.
When people join your "Team" you can earn extra bonuses as well as commissions from their sales, and so forth. Every MLM company has their own compensation plan, but most of them are the same, almost identical.
Most of the time, sales and other activity is tracked with a point-system, usually called Volume, and the more Volume you earn the more cash you can make. As you progress and make more sales, your rank will increase, and this will entitle you to further rewards. Volume is often divided between "Personal Volume" and "Sales Volume".
The core difference between network marketing vs. affiliate Marketing is the latter option does not have any of these overly complex compensation plans.
"Be Your Own Boss, Work Your Own Hours"
Most MLM companies will advertise their income opportunity with phrases like this, appealing to people's desire to be their own boss. They want you to believe it's your "Business" and you're a "Business Owner".
The problem is you're not a business owner. You're working for someone else, and they're taking most of your profits. But you're not an employee either, because you don't earn a flat paycheck every month. You're paycheck depends on how many people you can recruit or how many sales you can make.
Nevertheless, this does not stop people from taking to social media and claiming they started their own new business and need all the help they can get. Just take a look at this screenshot below.
The recruitment advertisements are incredibly vague and force you to message the person for more details, and that's when they'll pitch you the default MLM pitch.
What they don't tell you is you need to pay to join, then pay to play, and continue spending money to meet sales requirements.
Low Commission Rates:
Usually, the commission rate for direct-sales is quite low too, between 20-30% for product sales. Not to mention the products are, more often than not, extremely over-priced and low quality.
In other words, it's like a more advanced version of a pyramid scheme, with a few products thrown in for good will. Let's move on.
You're probably wondering how much money people make from these compensation plans. It sounds good, certainly everyone must be making hundreds of thousands of dollars? Well. I'v got some bad news.
The DARK Reality of MLM Companies:
These pills might be hard to swallow, but the reality of MLM companies is quite dark. In fact, after doing a bit of research, the whole foundation of MLM companies comes crumbling down and you can see it's all a facade. Smoke and mirrors. Don't take my word for it, though.
There's a 31-minute segment Last Week Tonight hosted by John Oliver that I highly recommend watching at least once. In the video, he perfectly describes the downsides and risks of joining a multi-level marketing company.
See for yourself:
Down to the details:
How much money can you make?
MLM companies are required by law to share some sort of income disclosure statement, so people can see how much money members are earning in the compensation plan. Most of the companies don't do this though, but the ones that do, reveal some interesting insights.
Case Study 1: Empower Network
Empower Network is a company that promises you can make thousands of products by selling their training material and recruiting more people under you. It costs over $3,500 to join. According to their income disclosure statement, 92% of all members earn a grand total of $9 a month.
- You Spend: $3,500 +
- You Earn: $9
Update: It looks like Empower Network has been shutdown. No surprise there. These programs shut down all the time, and then come back up, under a different business name. That's another reason to avoid them.
As you can see, the vast majority of people who work for these companies make little to no cash. To put it another way, the top earners in a MLM company make less than people who work a regular part-time job!
Case Study 2: Stream Energy
Stream Energy is a lesser-known MLM company in the energy & gas industry. As a distributor you'll be promoting various energy-packages that are supposed to help save on energy bills.
- You Spend: $200 + (admission fee)
- You Earn: $0.09/Year
That wasn't a mistake. The income disclosure literally says the average distributor earns $0.09 a year. Wow.
Fact: Approximately 99% of people who join a MLM program fail to make a single dollar. Ridiculous!
So they promise all these fantasies of being your own boss and making thousands of dollars a day, but the reality is you're lucky to make $9 a month.
Yet another example (we have a lot of these!):
Case Study 3: Arbonne International
Arbonne focuses on skin-care and cosmetic products, though most of them have poor reviews on Amazon. It doesn't cost much to join, but there are monthly sales requirements.
- You Spend: $20
- Monthly Sales Requirements: $200 worth of products
- You Earn: $788/year ($65/month)
Though this one isn't as bad as Stream Energy, there is a lot of pressure to meet the monthly sales requirements. It's also important to note only 12% of distributors received a check.
As I mentioned before, once you do a tiny bit of research into these schemes, it all comes falling apart.
Let's move on.
Who is Making Cash?
Even though MLM companies have a bad rep, the industry is one of the largest in the world, estimated to be worth around $170 billion. If the majority of people are making no profit, where is all the cash going? Who is making profit?
I hate to burst your bubble, but the only people who are making cash in the MLM industry are the owners of the companies, the ones at the top of the pyramid. The pyramid structure only works for the people who are the first ones to join.
Since with a pyramid structure, small commissions are sent up the ladder, the people at the very top are the ones who get all the cash. They want it to look like you will be the only person at the top of the pyramid so you get all the benefits.
But that's not true, because most MLM companies require you to sign up under someone. And that person is under someone. Chances are you're nowhere near the top of the pyramid. It's no wonder most people fail to earn a profit.
Can't Some Distributors Make Cash?
There are some cases where people who have a massive network can earn a decent amount promoting these opportunities.
Unfortunately, the average person doesn't have so much marketing power. Either way, if you did have a large platform you could make so much more promoting - well - anything else.
To answer the question, it is possible to earn money in a MLM company, and some people manage to beat the odds.
The problem is you either need massive marketing power or a legitimate company with decent products that are moderately priced. Unfortunately, that magical combination is exceptionally rare.
But that doesn't mean you can't. It is possible.
What is Affiliate Marketing?
Affiliate marketing is the act of promoting something for a commission or a percentage of the total price of the product. The same payment structure sales people have been using since the market was created.
The difference between affiliate marketing and multi-level marketing is with affiliate marketing there are no...
- compensation plans
- or promises of wealth. It's just a payment structure.
If affiliate marketing had a compensation plan, it would be this: if someone you send to our website purchases something we'll give you a percentage of that. That's it.
No need for 200 pages of levels, ranks, Volume percentages, trickle-up commissions, binary-matrix down-lines, and all the other silly terms involved in typical MLM compensation plans.
Instead of working on making your own product, all you have to do is promote someone else's product, and receive a cut when a sale is made. Very simple. Since there are so many online platforms and products, there are thousands of affiliate programs you can get in on.
Just search for "Affiliate programs" on Google and you'll see. Everything is automated, and you can snatch up an affiliate link to a product you love in a matter of seconds, no need to pay admission fees or buy packages or all the other MLM requirements.
Since there are no down-lines, there's no need to annoy all your friends and family to sign-up under you. There's pressure either because you are not required to make a certain amount of sales to remain active.
But that's not even the best part.
Is Wealthy Affiliate a Pyramid Scheme?
When it comes to network marketing vs. affiliate Marketing most people throw affiliate programs into the same boat as pyramid schemes, which couldn't be further from the truth.
Wealthy Affiliate is my number one recommended product, and even though thousands of people recommend it too, there are still people who say it's a scam.
I want to make one thing very clear...
Wealthy Affiliate is NOT a pyramid scheme. It's not a MLM company, either.
It's an online platform that provides a host of useful resources and features needed to build a successful website from scratch; such as keyword research tools, online training courses, free webinars, and much more.
Wealthy Affiliate has an affiliate program, but it's not based on levels.
Affiliate Marketing Pros:
Remember the long list of downsides of joining a MLM company? Well, affiliate marketing has none of those downsides. You can think of affiliate marketing as a way of offering free advertising in exchange for a commission.
It's an incredibly simple way to make money online, and it's free as well. But to drive the point home, here are a list of affiliate marketing pros.
P.S. Want to know more about affiliate marketing? Check out this post: Internet Marketing and Online Affiliate Programs
Or... What is an Affiliate Website. Both are top ranked posts and answer any remaining questions you have on the topic.
1. High Commission Rates
In MLM companies, the maximum commission rate is usually 20% but to unlock that rate you need to grind in the company and move up in the ranks, spending a lot of cash a long the way. In the world of affiliate marketing 20% is actually a low commission rate.
Granted, every company's affiliate program is different and some pay high rates while others are quite low, but the standard is usually at least a 50% commission rate. Head on over to any affiliate marketplace to see for yourself.
One strategy a lot of product-creators use to help gain traction is to offer 99% commissions on their latest product, so the marketer earns a decent rate, and the product-creator gets the marketing he or she needs. Win-win.
2. No Sales Requirements
As we mentioned earlier, in MLM companies you are pressured to make product sales and recruit new people otherwise you will lose your rank and whatever benefits come with it.
With affiliate marketing none of that applies. There are no monthly sales requirements, so you can take it easy. There's no need to pressure any of your friends to buy from your links, either.
So you can relax.
3. No Admission Fees or "Sample Packages"
Most affiliate programs are free to join. There are some platforms that you need to have an active account with, in order to participate in the affiliate program, which is a small price to pay. But sometimes you can avoid this fee by reaching out to the support team and asking if you can only participate in the affiliate program.
Either way, there are plenty of free affiliate programs you can look into. The only investment is the price of a domain name and a hosting company, which is a tiny investment compared to what most MLM companies charge.
Hint: a domain name costs around $12 a year.
No need to drop $500 or more do buy a sample package.
4. No Risk of Losing Everything Due to a Shut Down
Remember when I mentioned the risks of investing all your time into a MLM program only to lose it all when the company is shutdown? You might think the same applies for affiliate marketing and in a way that would be true.
You can spend a lot of time promoting a certain product as an affiliate only to have it disappear, it's a risk too. On the other hand, there's always something to promote online.
If you build a strong platform like a website and one of your main affiliate programs dies down, there are plenty of other affiliate programs you can swap in. Just change the links around.
5. Freedom to Choose
There are so many affiliate programs out there, it's almost impossible not to find something to promote. The awesome thing about this method of making money online is you can find affiliate programs in practically every niche. Bought something cool recently? It probably has an affiliate program.
To add on the point earlier, if you lose one program, that's fine, there's thousands of other ones out there. There is always something to promote. The freedom is a breath of fresh air.
Downsides of Affiliate Marketing:
From the beginning of this resource it was clear I recommend affiliate marketing because it's obviously the best option to making money online. But does that mean affiliate marketing is free from downsides? Nope!
When compared to MLM compensation plans, affiliate marketing is clearly the winner, but there are some things that you need to know about affiliate marketing as well.
It's not as simple as throwing up some links on a website. Nowadays, the internet is incredibly competitive, and you need to figure out how to write proper content, target keywords, and drive traffic to your website.
I know that sounds complicated, and it is work, I won't lie. But building an online business is about as tough as writing book reports and holding a steady job.
It requires consistent work, even if that work doesn't deliver results right away. Most people bail when they don't see instant results.
The Winner: Affiliate Marketing
Without a doubt, the winner here is affiliate marketing because it's free and you don't need to meet any sales requirements or pay an admission fee.
With networking marketing companies you need to spend a lot more money than you bargained for on various fees which puncture your business.
Here's my advice. Remember this...
Stick with it.
It takes time:
The affiliate marketing model is the same model plenty of people use to make fat-checks every month. It does work. But it also takes time to build from scratch.
Competition is much more intense now than it was 10 years ago, and it will be even more intense in the future. Remember that.
Which is all the reason to get an edge on the competition and learn the correct information from the get go.
It's also good reason for a bit of urgency. Yesterday was the best time to start. Today is the next best.
Here's the best part:
Once you put in the initial groundwork you can collect the results far into the future. Your website will constantly be bringing in cash, even if you leave the internet world behind for some sunshine and beaches. Of course, like all good things in life, it takes time, work, and patience.
So if you're expecting to throw up a site and instantly make enough money to quit your job and travel the world without a care, think again. It's not that simple, but it's not that complicated, either.
Luckily for you, my number one training center walks you through all the necessary steps to building the website of your dreams.
Build on it a bit at a time, and soon you'll have a nice source of income, with no attachments.
Pretty cool, right?
If that sounds good to you, click this link and sign-up to Wealthy Affiliate. Create a free account first, and see where you want to go from there.
Thanks for taking the time to read this network marketing vs affiliate Marketing resource, and I hope you learned something new about MLMs and making money online.
Until next time.