Is Affiliate Marketing a Pyramid Scheme? This is a good question to ask and I am sure this question does not come from you.
Probably you have read some articles or product reviews on the internet that claim Affiliate Marketing is a Pyramid Scheme.
It always amazed me how some Internet Marketers can go the extra mile to back up their opinion with false claims just to convince their audience to buy certain products.
The internet is full of unethical marketers and fake gurus.
In this article, I am going to prove to you that affiliate marketing is neither a pyramid scheme nor a scam.
But do not get me wrong.
They are a lot of scams and pyramid scheme activities on the internet.
In this article, I just want to prove that Affiliate Marketing as a business model is not a pyramid scheme.
Let’s define Pyramid Scheme to have a clear understanding and it will also guide us to conclude whether Affiliate Marketing is Pyramid Scheme or not.
What is Pyramid Scheme?
On Oxford Language, it is defined as “A form of investment (illegal in the UK and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones”.
As you can read no product is being sold or a service is being served in this definition.
According to Wikipedia: “A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products.
In this definition, no real product is being sold or a service is being served either.
corporatefinanceinstitute.com define a pyramid scheme as “An unsustainable business model in which original investors make money by recruiting others rather than by selling actual products or services”
Again products and services are being sold…
Forbes.com also define it as a scam where a so-called marketing company promises to help you earn big profits in exchange for recruiting new participants into the scheme.
Again no products are being sold here. Only recruiting new people into the scheme.
Other people call the Pyramid Scheme the Paul and Peter Scheme. In other words, stealing from Paul to pay Peter
I think we have enough definitions to work on it.
Let’s watch this video explanation to be on the same page before we move on.
Let’s see how affiliates or publishers earn money with Affiliate Marketing and see if they are making money by recruiting people or promoting products and services.
How Do Affiliates or Publishers Earn Money
As you know Affiliate Marketing is a marketing strategy Marchants or Vendors use to get a workforce of marketers to promote their products.
They pay their affiliates to drive traffic to their websites or offers.
Every Marchant or Ventor pays their affiliates also known as the publishers by bringing potential clients to their businesses or for every sale they generate through their affiliate link.
Affiliates earn money by promoting some vendors’ products and services.
First, the affiliates need to sign up for the Vendors’ affiliate program and then get an affiliate link that they can promote on their blog website, youtube and other platforms
Therefore, vendors already set up a way to pay affiliates and you as an affiliate or publisher need to agree on terms and conditions.
They are 3 main types of affiliate payments which I am going to explain in more detail and see if you can spot any pyramid scheme activities.
Type of Affiliate Payments
I am going to explain the main type of affiliate payment. But what you have to know is Affiliates or publishers are getting paid to run advertisements or embed affiliate links in their content.
3 main types of affiliate payments:
Pay Per Click
Pay-per-click is an online advertising model in which affiliates or publishers can embed affiliate links in the content to drive traffic to vendor websites or offers.
The affiliates or publishers only get paid when the link has been clicked by a user.
As you can see here vendors are paying for advertisements and not recruiting anyone. You can also tell there is no sign of a Pyramid Scheme.
Pey Per Impression
Pay Per Impression is an online advertising model where publishers only get paid for ad impressions, not clicks.
It means affiliates are getting paid only when the vendor banner, text, link or other promotional material is shown to the web page visitor.
Again there is no sign of a pyramid scheme in this operation.
Pay Per Action
Pay Per Action is also an online advertising model, pay-per-action, also known as cost-per-action, is a pricing model where affiliates get paid for each specified action that is taken by the potential customer.
Let’s dig a bit more into this to see which action needs to be taken for affiliates to get paid.
Affiliates or Publishers are getting paid through Leads or sales.
Let me explain those actions to see again if you can spot any Pyramid Scheme activities.
Pay Per Lead
Affiliates are getting paid for every lead that they generate.
This means a user needs to take some action. This may be to fill out a contact form, request a call or ask for a quotation or even download the app
Pay Per Sale
This is the most popular way where affiliates get paid for every sale their make through their affiliate links.
They are products and services that pay for a one-time commission, lifetime commission and recurring commission.
I want to explain this type of commission if we can detect any pyramid scheme activities to help us decide if Affiliate marketing is Pyramid Scheme or not.
One Time Commission
Affiliates are paid once for every successful sale of products or services. As you can read there are real products being sold and not recruiting someone.
No Pyramid Scheme in this action was detected.
Lifetime Affiliate Commission
Affiliates are paid for every successful sale and the future sale for that customer. This means whenever the customer buys other products in the future the affiliate will still get paid commissions.
Did you detect any Pyramid Scheme activities here?
Affiliates are paid for every successful sale and also get paid recurring commissions as long as that customer keeps on paying the monthly subscription.
This type of commission mostly occurs on the SaaS (Software as a service) when customers subscribe to a program or software and they have to pay a monthly fee.
As an affiliate, you get paid every month as long as customers keep on paying the subscription. As you can read again customers are rending a monthly service.
Affiliates are earning recurring commissions for successfully renting the vendor service to customers. There is a lot of debate about this type of commission.
For some affiliates, 75% of their earnings come from recurring commissions.
That is why some online marketers claim that affiliate marketing is Pyramid Scheme.
Let me ask you this question if you are promoting Netflix and most of your commissions come from Netflix.
That does make Netflix a Pyramid Scheme?
You are promoting a real service and people subscribe to the service they love and you earn recurring commissions for promoting the service.
In Oxford Language, Pyramid Scheme is defined as a form of investment in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones”
Let’s see what Affiliates or Publishers invest in to earn commissions.
What Do Affiliates or Publishers Invest to earn commissions?
Affiliates or publishers are induvial who sign up with affiliate networks or affiliate programs and start promoting different products and services.
Some affiliates run a blog website and drive traffic to different Marchants or Vendors’ offers and some affiliates run a Youtube channel and drive traffic to different Marchants or Vendors’ offers.
To run a blog website involves writing articles for your target audience and ranking those articles on search engines like Google, Yahoo and Bing.
You will need to know more about SEO (Search Engine Optimization) and with a Youtube channel you need to create video content and also know more about ranking your videos on YouTube.
As you can see Affiliates invest time in creating content and managing blog websites and other social networks to drive traffic to different vendor websites or offer and get rewarded.
As you can see Affiliates do not invert time to recruit two participants. Instead, they educate and add value to their target audience before sales occur.
Affiliates or Publishers invest their time in creating quality content that can drive traffic to their affiliate link and get paid whenever someone purchases the products or services they are promoting.
Unlike a pyramid scheme, you invest money and recruit more people into the scheme by promising them a high return on the investment.
Is Affiliate Marketing a scam?
There’s a lot of misinformation out there about affiliate marketing, and some people think it’s a scam. But the truth is, affiliate marketing is a legitimate way to earn money online.
You can find affiliate programs for just about any product or service online, and if you promote these products or services, you can earn a commission on every sale.
The key to success is to find a product or service that you’re passionate about and then promote it to others. If you’re promoting something you don’t care about, it will be very difficult to make sales.
But if you’re promoting something you’re passionate about, you’ll be much more likely to succeed and make a living online by promoting different products.
Before you sign up for those pieces of training you have to know that affiliate marketing requires time and effort to build a successful online business.
It is not an overnight success or a get-rich-quick scheme.
Is Affiliate Marketing a Pyramid Scheme – Final Verdict
Affiliate Marketing is not a Pyramid Scheme. It is a marketing strategy Marchants or Ventors use to get a workforce of marketers to bring potential customers to their business.
Affiliates or publishers earn commissions for every potential customer they bring to their business or earn commissions for every sale they generate.
Therefore, if you want to learn step by step how affiliate marketing work and how to build an online business from scratch you can check out My Top Recommendation Platform for tools and training.
Now is time for me to talk to you. Did you spot and signal of Pyramid Scheme in this business model? Please tell me what you think in the comment section.