Is Affiliate Marketing A Pyramid Scheme?

Did you know affiliate marketing is over 30 years old?

The idea of “affiliate marketing” as we know it today was created by a man named William J. Tobin who all the way back in 1989, started the first-ever affiliate program for his business: PC Flowers & Gift.

Over 30 years later, I still see people asking if “affiliate marketing is a scam” or stating “this is just like a pyramid scheme, it won’t end well”.

As it turns out, both ideas are wrong (and I am going to tell you why below).

If you’re scared of going into affiliate marketing because you’ve heard affiliate marketing is just another type of pyramid scheme (sort of like MLM), be sure to read this entire guide I’ve prepared for you below.

I’ve been doing affiliate marketing for nearly 8 years now and even though these accusations were there when I was getting started, I’ve glad I did not let that deter me from creating my own affiliate marketing business, which now gives me the lifestyle I’ve always wanted.

Down below, I am going to explain to you to:

  • The differences between affiliate marketing and pyramid schemes
  • What these types of businesses are – and;
  • Why affiliate marketing is legal to do (and why a pyramid scheme isn’t).

If that’s what you’re here to learn, let’s get started…

What Are Pyramid Schemes?

affiliate marketing vs pyramid schemes

Pyramid schemes are a scam.

It’s best we get that out of the way as soon as possible.

In fact, most countries have already banned pyramid schemes and severe laws are in place against them.

The reason for this is that pyramid schemed can never make money the way the company behind it claims it can.

This is because if you join a pyramid scheme, you won’t actually be selling a product (and making money just like you would with affiliate marketing).

Instead; you would be making money when other people buy into the scheme.

Now the trickery of this all is that pyramid schemes can make money, but only for those who get in on it early.

The CEO would make the most, the few “managers” under him would also make a few $$$ but the deeper the pyramid goes, the less there is money to be made for the people at the bottom.

In fact, at the 12th level for the scheme, you would need 12 billion people to join in (nearly double the entire world population) if you want to have the chance at making any money.

how pyramid schemes fail

I know this sounds complicated, and the best way to understand this is by seeing it in action.

Before I tell you all about affiliate marketing, how it works and how it differs from pyramid schemes, make sure you want this quick video below as it will help you understand better the faulty business-model pyramid schemes run on:

NB: ScamWatch offers a great guide on how to protect yourself from pyramid schemes. Take a look at that guide to understanding better what you can do to spot, avoid and warn others about pyramid schemes.

What Is Affiliate Marketing?

On the other hand, we have affiliate marketing, which in a nutshell, works like so:

  • I have a product that sells for $100.
  • You have an audience you can sell that product to.
  • I issue an incentive to pay 30% for everyone who can sell my product.
  • You sell my product to your audience
  • You make 30% ($30 in this case).

That is how affiliate marketing works.

Your earnings are not dependent on tiers and levels of people coming into the business under your umbrella.

Affiliate marketing, simply put is just a “sales on commission” type of job, only it’s done online rather in the “offline world”.

So Why Does Affiliate Marketing Have A Negative Reputation?

I honestly have no concrete answer to that, however;

When I was starting out with affiliate marketing sometime in the early 2010s, the affiliate marketing industry was awash with big claims of quick and easy money.

Of course, there is no such thing as a “get rich quick” business online, but sadly – many people fell for this (and I did too in the beginning).

This left a foul taste and that is where affiliate marketing started getting a bit of a nasty reputation, which is a shame really because IMO;

Affiliate marketing is as legit as it can be.

To further illustrate this point, we’ll soon talk about the differences between affiliate marketing and pyramid schemes but if you want to get a better understanding of what affiliate marketing is, check out this great introductory video guide by Ahrefs below:

5 Key Differences Between Affiliate Marketing & Pyramid Schemes

There Is A Real Product Being Offered

One major difference between affiliate marketing and pyramid schemes I want to bring up is the fact that with affiliate marketing, there is a real product that is the main way to make money.

Some pyramid schemes do have a “product” to sell, but you will soon realize that the effort is not to sell the actual product but to sell memberships into the scheme.

In other words, the product is just a front.

The money is made when more and more people sign up for the “business opportunity” behind the product.

On the other hand, as an affiliate marketer, you are selling the product and only the product.

You Don’t Have To Pay To Get Started

One other major difference I’m sure you want to know about and which is a clear giveaway and a sign to “run as fast as possible” is if you have to pay to promote the product.

Yes, pyramid schemes come with a “fee” to join in the scam.

The only way you can then get your money back if you sell others on doing the same (a mistake you did).

On the contrary, all reputable affiliate marketing programs are free to join. If you ever come across an affiliate program you need to pay for, it’s best to avoid it and find an alternative.

Affiliate Marketing Is Relatively Cheap To Maintain

Apart from affiliate marketing being pretty much free to get started with, it’s also nearly-free to maintain and run.

With MLM and other shadier forms of it (such as a pyramid scheme) you need to keep buying a product and keep spending money just for the sake of “being in the scheme”.

With affiliate marketing, I can create a website today and it will only cost me ~$100 to fund its basic expenses for a year (such as domain and hosting).

That will remain true for as long as I keep the website running.

Affiliate Marketing Powers The World’s Biggest Brands

One thing you should also know is that while pyramid schemes are illegal (more on this soon), affiliate marketing powers major brands such as:

(The links lead to my own review about each of the affiliate programs mentioned).

The biggest companies in the world are all now jumping into affilia