Multi Level Marketing vs Affiliate Marketing
Author: Tim NashYou visited a few times and I would appreciate your thoughts on this post, why not comment?
Update: Talk about a cock up, I initially named this post Multi layer marketing, this while a quite accurate description is not what MLM stands for! I’m now suitably embarrassed Thanks to Linda Buquet for spotting it (shame she didn’t post a comment to tell me! - I do hate embarrassing trackbacks!)
Have you ever been in a forum and met a poster who wrote a really inane comment such as “sure that’s great” or just blatent spam. Normally these darlings have a link in their signature to an E-Book but what are they doing and why are they polluting forums, news lists and anywhere else they can find? Welcome to MLM or multi level marketing
Introduction
I’m sure the modern day MLM pushers would say it came from the late 90’s but its far older, indeed while it may not have routes in ancient egypt they share a very similar symbolism!
MLM (when discussed in this context) are a modern version of the Pyramid scheme and while they take many forms the timeshare is the most famous real world example.
Pyramid scheme works on the principle that members recruit new members and earn money not only from bonuses for recruiting new members but that of the recruited member and who ever they recruit. For most members of such schemes there is a rather obvious problem that we will come back to in a minute. But let us just say only a few will profit from such a scheme.
At this point I should point out that the term MLM has been polluted and the original concepts of Multi level marketing were not pyramid schemes as their was (is a physical product) involved, keep in mind most MLM today and on the web have no physical product at all (except perhaps a virus)
A second point to bear in mind is that in the UK, US and many other countries pyramid schemes are illegal people have in the past gone to prison for running such schemes.
How does it all work
Let’s presume we are talking about the legal MLM schemes and take a traditional (if grey example)
An Ebook seller wishes to distribute his pride and joy, he therefore offers a great scheme where he asks people to sell his ebook on his behalf, he offers commission per sale but it is much lower then normal affiliate schemes however anybody who refers another member not only earns commission on their own sale but that of the new member and all members they recruit and so one.
Sound familiar?
It could be worse people actually pay to join such schemes!
Lets look at what’s happening here…
The guy at the top in this scenario is our ebook seller he as you can see is laughing all the way to the bank, the next layer, spend their time recruiting others rather then selling books, soon they have recruited another level, who start selling, but realise they are not making money as fast as they thought, they ask the “guru’s” what to do, and so they start recruiting and selling as well, layer after layer with those at the top getting richer and those entering finding it harder.
But what’s the con?
So far this hasn’t sounded to bad but you got to start thinking about it logically for a moment, in the above scenario we actually do have a product an e-book to sell, their is a finite number of people who wish to buy such a thing (and remember most MLM schemes the product is complete crap) we also have a second more pressing problem both MLM and pyramids schemes only work if each new layer recruits more people on their own a single member will not make any (or very limited money) this is common sense as 3 people will in theory earn more money then each other but lets say the scheme has 6 original members, they suggest that each member recruits 6 members, that’s pretty easy now isn’t!
Now if your at the top or one the first its looking good, but more then 2 layers down and your chances of making money has dropped now remember this version is legal as their is a product so you can still make money selling that ebook right?
Difference with Affiliate marketing
So what is the difference simply affiliate marketing offers commission on a per sale basis and in some cases offer referral bonuses for new affiliates but do not allow you to gain either money from their commissions (not quite true some offer a small percentage) nor any bonuses from subsequent members they recruit. However the commissions are normally much better then MLM schemes.
How do I know what I’m joining
Some obvious things to avoid,
- Join up fee, with bonuses for recruiting members - this is a traditional pyramid scheme and on the whole utterly illegal
- Low commission but promise that bonuses and return of commissions from recruited members - Traditional MLM not always a scam but your chances of earning money is limited by which level you are joining
- Any one who says using forums to sell ebooks works
The official difference between MLM and pyramid is an MLM scheme has a product which doesn’t require membership and therefore provides two methods of income and in theory is more sustainable. In reality most of these schemes have dodgy products worth almost nothing with no physical value such as ebook is it a pyramid scheme or an MLM you decide.
admin
from Webdigity webmaster forums2007-08-06 12:51:42
The principle is simple. If it looks too good to be true, then probably it is….
I’ve learned about MLM schemes the bad way. It cost me about 5000 euros and hundrends of hours to understand that MLM does not work. At least it can’t for all the people.
And the worst in my opinion is that you have to use your friends in order to make money from this kind of business.
BTW MLM founded back in 60s when a corporation in the US realized that door to door is to hard for them. So they created this system that gave them access to houses again
J Matts
2007-08-07 08:45:05
I hate MLM scams, I also got caught out, though with so much bad publicity they now go under many other names, and pretend to be affiliate schemes. I guess the second piece of advice, never pay to promote some one elses product!
Tim Nash
2007-08-07 11:41:25
great advice both of you
and
one of the things is that MLM look so legit on the outside, and they don’t all take the ebook scam idea some are for expensive products, but these always come with a “joining” fee.
Nice
2007-08-07 11:59:58
Most of the MLM programs actually sell the idea, with no real program. For example you are being member of a “How to make 1 million $ in 1 year” program, and the idea behind this is to sell this over to make the money
But some times it worths to promote other people’s products, but with affiliate programs and arbitrage techniques. I know many people who earn huge ammounts by doing this.
Olaf
from Website Templates2007-08-07 12:34:28
MLM is cool if you’re the founder
BL
2007-08-22 03:53:33
Needs a real poroduct..
Tanya Stephenson
2007-09-05 00:54:52
Great information for thought….
Multi-Level-Marketing and Affiliate Marketing ??? Don???t Get it Confused. | IMRookie.com
2008-02-28 06:12:01
[...] First off, affiliate marketing products and services are ALWAYS FREE to join. MLM???ers are expected to pay a fee to join the program. Affiliate marketers get paid a direct commission for selling a product to users. MLM???ers are required to recruit others into their MLM program. Affiliate marketers can chose and pick whatever products or services are available online (plentiful). MLM???ers can only sell products being sold within their program (Protein Bars, anyone?). Affiliate marketers are paid according to their efforts to market a product. The only ones that get rich at MLM are those who get in early and are at the top. I found a great article on MLM vs Affiliate marketing at PaymentBlogger. [...]
Paul Clegg
2008-10-13 23:19:02
this thread is not at all rational and somewhat once sided.
affiliate programs and multi-level programs are merely methods of marketing
of course one has to choose the right company, most don’t know how to choose a quality company as they do not do their due diligence (having been introduced by a friend who hasn’t done their due diligence either).
if people will do their own research they will find many blue chip $multi billion companies trading on the NYSE and elsewhere. I am not sure the writer of this blog really does understand the network marketing industry but clearly he has had a bad experience … I had one in Starbucks but I wouldn’t write them all off.
Tim Nash
2008-10-14 16:58:14
Paul, I’m not sure you read past the first line if that and the article is very clear this is not talking about marketing idea but about MLM schemes which in this context are the webs version of Pyramid or Ponzi schemes which are not only a particularly bad marketing strategy (they nearly always backfire into bad press) but also illegal in many countries including virtually all of the US
so somewhat unlikely Starbucks or any large company would be employing such tactics.
I fear and again I suggest a rereading you have mistaken my use of the term MLM to be some larger bracket to include franchising and marketing in general. But the article was and still is all be it one sided a warning to people not to fall into pyramid schemes under a “new” name.
Perhaps I should have included a quick paragraph on franchising to have helped those who may have heard the term MLM in a traditional business setting.
Steve
from Opportunity Course2009-01-12 00:38:40
I like the principle of the article here, and this is something I’ve been working to teach people about. But I think it’s worth clearing some things up.
First, all business is about one person getting others to work for him so that he can reap the benefit of their labor. Nearly every corporation is a pyramid. The people at the top are always paid the most, and the people at the bottom work their butts off and can barely pay their bills.
But that doesn’t make these corporations a scheme. If the corporation is building products or providing services that people want simply want to pay for — where there is no business opportunity — then clearly there’s no ponzi scheme going on.
Likewise, as more competition comes into the MLM arena, more of the bums will fall away and you’ll see the winners are those who either produce something not available elsewhere in the marketplace, or they provide something at a competitive price. In this way, even the “last person in” is getting a good value and it’s irrelevant if s/he’s able to recruit people. This is the only kind of MLM I get involved with.
(One way to spot these: if the MLM has a lot of customers who are not part of the business opportunity. Yes, these exist.)
I believe this will become more and more commonplace as other forms of advertising fail to get through due to how many ads we now see in a day, and thus how strict our filters are becoming.
Affiliate marketing addresses a lot of the problems inherent in MLM, however a lot of affiliate programs seem to best be marketed online, which requires a steep learning curve for much of the population. I like affiliate programs that can be easily taken offline for the bulk of people.
Anyway, that’s my 2 cents in support of the article in a “Yeah, but …” kind of way.