MLM vs Affiliate Marketing: Which is the Right One for You?

Are you considering different ways of monetizing your online presence to earn additional income?

You should. Besides, the marketing world offers so many opportunities to those who have a vast network of connections and want to capitalize on that.

Today, we have two such opportunities – multi-level (MLM) and affiliate marketing. We will discuss what they are about, their benefits, and how they differ to help you understand which one is the most fitting for you. 

What is MLM (Multi-Level Marketing)?

Multi-level marketing (a.k.a. network marketing) is a form of direct marketing where a company sells products through unsalaried sales teams using a pyramid commission system. 

As a member of an MLM business model, you earn a commission from selling a product directly to a consumer or to other distributors you’ve hired as a part of your sales network. 

A bit confusing? 

Let’s break down the process behind network marketing and the players involved to help you understand it better and easily differentiate it from affiliate marketing later on. 

The players

The network marketing game involves three key players:

• Sponsors (sales representatives) – recruit people to work as distributors for a business.  
• Distributors – people whom the sponsors have recruited as distributors. 
• Recruits – people whom distributors have recruited to sell products. 

A sponsor usually is responsible for bringing in new recruits to sell a product. Essentially, they create a team of salespeople, who are not a part of a company, so they don’t receive a salary but can earn a commission. 

Distributors are those salespeople we were talking about in the previous paragraph. They, too, can become sponsors if they enroll enough new people and create a team of their own. 

Finally, recruits are those team members working with distributors. They can also level up if they bring enough people to the team. 

So, theoretically, any MLM participant can move up the pyramid if they bring in enough customers and create their own network of recruits. 

With the players clear, let’s now discuss how the whole MLM system works. 

How does it work?

Take a look at this graph representing the MLM pyramid with the hierarchy of the main players in it:

Let’s decipher what goes behind this pyramid. 

Imagine a business owner approaching you saying, “Hire five of your friends to sell our product.” You bring these friends in, who become independent distributors – they don’t work for a company or you, but both you and your pals earn a commission for product sales. 

Next, your friends each bring six of their acquaintances, who become recruits and also earn sales commissions together with you and your six distributor friends. As these recruits bring their own recruits, the pyramid bottom grows, resulting in a multi-level sales process. 

If you look closer at the pyramid, you can see the arrow on the right that moves up and down. This arrow reflects the two directions that multi-level marketing can go:

• Upline – these are the people at the top of the pyramid who recruit the distributors. 
• Downline – these are people recruited by sponsors and high-level distributors (your initial six friends you invited). 

With the process clear, let’s try to understand how the commissions are earned. 

As mentioned earlier, you can earn a sales percentage via two sources:

• Direct sales of the product to customers
• Enrolling other recruits to sell the product

The commission size will differ depending on the source, the number of products you sell, and the number of new people you bring in. 

MLM vs pyramid schemes

Often people mistake affiliate marketing for a pyramid scheme, but are they the same?

No, with the main difference that multi-level marketing is legal. However, there’s more to these two than meets the eye. 

Pyramid schemes are an illegal form of MLM, where people have to pay to remain a part of the system. Essentially, they have to pay for the membership and purchase products they then have to distribute. Meanwhile, the founders earn a commission from the membership and products sold to the members. 

Unlike MLM, a pyramid scheme is a scam which primarily focuses on recruiting people instead of bringing in new customers. Thus, only people at the top of the pyramid can earn substantial income; those at the bottom usually lose more money than they make.

Here are more differences between MLM and a pyramid scheme:

With this out of the way, let’s now look at a few examples of businesses that employ multi-level marketing to sell their products. 

Examples

You may have encountered more MLM instances than you think. 

Heard of Tupperware?

It operates as a multi-level marketing model, hiring people daily to sell and market its products. The hiring process happens at so-called Tupperware Parties – marketing events held at a distributor’s or sponsor’s home. 

At these parties, the distributors demonstrate the products and sign up new recruits. These parties are now also held online since the pandemic outbreak. 

How much do the participants earn in this program?

The 2017 Tupperware income disclosure stated that over 97% of active distributors earned about $700 a month, making it a good side income. 

Avon is another example.

The company has been running its MLM program for 15 years. In its 2015 income report, Avon announced that the average representative earned $135 a month. That’s not too much, considering you also have to pay a joining fee. 

With the main MLM principles clear, let’s discuss the main benefits of this strategy. 

What Are the Main Benefits of MLM?

Based on what we have discussed so far, you may be asking yourself – is network marketing really worth a try?

You’d be correct to hesitate; many people do when they hear about sales models based on the pyramid hierarchy. 

Nevertheless, 6.2 million Americans are currently involved in MLM, as they recognize its potential and benefits. 

What are these perks exactly?

Let’s look at some of them. 

Benefit #1: Low startup costs

It really depends on each particular case how much you’ll have to pay to join the pyramid. 

Tupperware, for instance, doesn’t ask for any investments upfront. 

But how much would you pay if you had to?

If we’re talking about Avon, the startup payment can be as low as $5 (the amount depends on your chosen signup option). 

Herbalife, another MLM example, charges members approximately $15 at the end of each year. However, with this program, you also can’t earn money by simply sponsoring or hiring someone – you have to sell products. 

The most expensive membership fee we could find was at Amway, which sells beauty, health, and home care products. Every member is charged a bit less than $100 annually, but this amount is fully refundable if you decide to leave the program. 

Benefit #2: Good income potential

If done right, multi-level marketing can earn you quite a few bucks. 

But what does right mean in this case?

First and foremost, you should possess the qualities of a salesperson. In other words, you should be sociable and outgoing, persuasive, and a good communicator. 

However, it all doesn’t matter if you don’t like the product you’re selling as a part of a multi-level marketing company. Liking the product means you’ll also know your way around it to the level that makes you a knowledgeable expert in it, able to convince others of its value. 

Another important thing is to know the market well enough to understand when and where there’s a demand for the product you’re selling. 

Finally, it’s essential to come to terms with the negative side of MLM, too. Many people can’t break even because they initially had very high expectations of the earnings they would make, and that’s also one of the reasons why only 25% of participants turn a profit. 

So, the bottom line is that you can get a good income from MLM, but you need to do your homework and research the program that interests you. 

Benefit #3: Passive income

Again, if done right, MLM can be a reliable source of passive income. 

Many people get into multi-level marketing as a side hustle to earn extra money, and for some, it turns out to be worthwhile. 

How much can you earn?

As we mentioned, participants of some MLM companies (like Tupperware) can earn about $700 a month. 

However, some companies boast even higher earnings of their distributors. For example, Herbalife reps can make $3000+ a month, with the lowest commission at $300, which is also not bad. 

Ultimately, everything depends on the MLM business’s requirements and your effort as a representative to market and sell products. 

Now, how different is multi-level marketing from affiliate programs?

To answer this question, let’s first discuss what affiliate marketing is and how it works. 

What is Affiliate Marketing?

Affiliate marketing is an advertising model where a brand hires people (affiliates) to promote and sell its product or service in exchange for a commission. 

There are three main types of affiliate marketing:

• Unattached: affiliates don’t have expertise in the niche the product comes from, and they don’t need to have a big audience to start promoting a product or service. 
• Related: affiliates sell the product or service related to what their blog or channel is about and should either have their own website with decent traffic or enough subscribers on social media to participate. 
• Involved: affiliates personally try the products before promoting them, and they pick only the products related to their niche. 

You can read more about these types in our detailed guide, but now let’s briefly review who is involved in affiliate marketing and how to start an affiliate program. 

The players

Affiliate marketing involves three main parties:

• The business that owns a product
• The affiliate, creator, or advertiser
• The consumer

The seller can be a startup, a small business, a solo entrepreneur, or a big corporation (e.g., Google AdSense).

We can also consider a dropshipping merchant a seller if they decide to engage affiliate websites to advertise their eCommerce online business. A B2B company can also do the same to promote its services. 

An affiliate (publisher) is a person or an enterprise doing promotional activities to market the seller’s offers to the target audience. For instance, it can be a creator who works in a very specific niche (many influencers monetize their YouTube channels this way), a blogger with a website that has good traffic, or an entrepreneur with their own business. 

Finally, the consumer is the ideal target buyer who follows the publisher’s affiliate link to purchase a product if they find it beneficial. 

Note that the publisher should always make the consumer aware that they are affiliated with the business whose product they sell. 

How does it work?

This graph presents a quick overview of the process behind affiliate marketing:

To implement affiliate marketing into the general digital marketing strategy, a brand usually launches an affiliate program, which includes the listing of products they expect the affiliates to promote, chooses the payout model (we’ll list them later), and sets commission rates. 

Next, the brand attracts new affiliates to the program. Once they sign up, they can choose the product they want to promote, and the program generates a unique referral link for them. By tracking links, the brand can track which sale comes from which affiliate. 

Then, creators launch promotional efforts (create videos, write blog articles, or post on social media) for lead generation. They include the affiliate link in the content and have to inform the target audience that the content is affiliated. 

The end goal is for the consumer to purchase a product via the affiliate link. If this transaction happens, the brand gets a new customer and the affiliate earns a commission. 

Speaking about commission, an affiliate marketing business can follow either one of these payout models:

• Pay per sale – the affiliate receives a commission for each sale coming from their referral link. 
• Pay per lead – the affiliate gets paid when the referred consumer becomes a paying customer. 
• Pay per click – the affiliate receives a commission based on the increase in the merchant’s website traffic. 

There’s also an option of pay-per-install, where the referrer earns money when the consumer uses their affiliate link to visit the seller’s website and download their product (software, app, etc.). 

Now, let’s look at some examples of affiliate programs to see what this strategy looks like in action. 

Examples

Amazon has one of the most popular affiliate programs. Amazon Associates unites influencers, bloggers, and publishers, who promote Amazon’s products and services on their channels and receive a commission in return (it can go up to 20%). 

We don’t exaggerate when we say Amazon’s program is among the top ones – it has the highest market share at 44.68%, and over 90K companies use it. So, Amazon earns a significant portion of its revenue from affiliates. 

Another example comes from Semrush, which has a high-ticket affiliate program (a commission is considerably higher compared to similar programs). As an affiliate, you can get $200 for paid subscriptions, $10 per new lead, and $0.01 for new signup. 

The final example comes from HubSpot. 

It’s another high-ticket program, which offers a 15% or 100% commission rate, and the average payout is $276, making it a great source of residual income. All you have to do is join the affiliate network, promote HubSpot’s services via your channels, and get paid for successfully referred prospects. 

Now that you have the basic knowledge of this strategy, let’s move on to discussing some of the benefits referral marketing has to offer. 

What are the Main Benefits of Affiliate Marketing?

Affiliate marketing is very popular among creators. 

Think about it – according to Influencer Marketing Hub, 84% of online content publishers have joined at least one affiliate network, and 94% of the previous percentage participate in two or more affiliate programs. 

The main perk is great side income, but there are other advantages of affiliate marketing, too. Let’s take a look at them. 

Benefit #1: Low risk

Affiliate marketing is associated with relatively low risks for vendors and individual affiliates. 

Let us explain. 

As a seller, you don’t have to pay the affiliate anything until they fulfill the program’s requirements. So, unless you see a purchase or a new customer appear via the referral link, the affiliate doesn’t get the commission. 

As an affiliate, you don’t have to invest anything to participate in the program. All related costs will be connected to promoting the product or service, but they will pay off once you get a new customer to sign up. 

The ongoing expenses also aren’t that high. 

If you’re a brand, all you need is an online tool to set up an affiliate program, which will automatically manage the affiliates and create referral links. So, no need to spend extra marketing resources on this strategy. 

The same goes for creators – you can implement affiliate links in the content you’ve already planned for your channel as long as the offer coincides with your content’s intent and your audience’s interests. 

Benefit #2: Flexibility

Both sellers and affiliates can enjoy great freedom with this advertising strategy. 

As we mentioned, brands don’t have to pay anything to referrers upfront. Plus, there are no contractual obligations – first, the affiliate fulfills the program’s requirements, then you pay the commission. 

In turn, publishers have complete control and don’t need to follow any deadlines and other obligations. Once your promotional efforts deliver tangible results, you earn your money fair and square. Plus, you don’t have to follow any strict rules regarding the content you’ll use to market the offer. 

Another side of this benefit is that a publisher doesn’t have to be fully committed to one program. 

That’s why, as we mentioned earlier, 94% of creators participate in two or more affiliate networks. Thus, you can streamline solid passive income from several channels. 

You can also choose between brands whose values resonate best with yours, which is an important prerequisite for many influencers doing affiliate marketing. 

Benefit #3: High ROI potential

84% of marketers say affiliate marketing has better ROI than other marketing channels. 

Why is that?

Most publishers participating in affiliate programs come from a related niche and have a relevant audience. Thus, the customers they bring in are highly interested in the product they are purchasing. 

So, to achieve a high return on investment, brands need to prepare a product listing that would attract a potential buyer’s attention. A relevant list of products will also help attract the right affiliates. 

As for the creators, they should also choose only those offers that would resonate with their followers. Otherwise, their reputation and the trust of their audience will be at risk. 

Now that you know the basics of MLM and affiliate marketing, let’s see what differentiates them. 

Affiliate Marketing vs MLM: The Main Differences

The key difference between affiliate marketing vs network marketing is the model they follow. 

Let’s recap. 

With multi-level marketing, you have a group of people dependent on each other. A sponsor’s revenue depends on how many recruits distributors bring to the team, and the distributor’s success relies on how many products they can sell and the number of new sellers they can attract. 

With affiliate marketing, referrers don’t really depend on anyone. They just sign up for the program, get an affiliate link, and start promoting products via content marketing, with no obligations and the ability to get out at any time. 

Let’s see where else these two differ from each other. 

Difference #1: Startup costs

Most affiliate programs don’t have joining fees. 

On the other hand, multi-level marketing implies initial investment, which can differ in size. 

Let’s elaborate. 

In most cases, you will have to pay money to get into the MLM business. For instance, Avon, as a parent company running the multi-level marketing program, will not only charge you for the membership but also a standard product kit, which you’ll have to show to potential buyers. 

Does it pay off?

Putting it lightly, not always. 

As we mentioned earlier, only 25% of MLM participants turn a profit. Besides, according to Truelist, only 0.05% of people in MLM earn $100,000 a year – mostly at the top of the pyramid. And there’s a 7% chance that you’ll go bankrupt, which is a considerable percentage if you ask us. 

Things are different with affiliate marketing. 

Simply put, there are little to no startup costs required by affiliate programs, making it one of the best business ideas at low investment. However, this applies only when the publisher already has a well-functioning channel to promote products. 

So, we can safely say that affiliate marketing is associated with fewer financial risks than network marketing. 

Difference #2: Product promotion

Affiliate marketing and MLM differ in the way they communicate product promotion to the target audience. 

With multi-level marketing, you need to have a large personal network of connections to be able to sell products and grow fast. Direct marketing to strangers will also be on a more personal level, which can sometimes feel awkward and pushy. 

On the other hand, as we said earlier, affiliate marketing is usually done by publishers and influencers with an already established online presence, a solid content strategy, and of course, a loyal audience. 

Moreover, if your followers trust you, it will be much easier to sell to them – 61% of consumers say they trust a product review from an influencer. 

However, if you’re doing unattached affiliate marketing (i.e., don’t have a huge pack of followers), getting tangible results from your efforts will be trickier. After all, you will need a relatively large number of people trusting you to be able to sell successfully. 

Difference #3: Freedom of choice

We already mentioned that you should only get into both affiliate and multi-level marketing only if you like the product and see the demand for it. However, there’s a slight difference in the degree of freedom of choice between the two. 

With MLM, you have a selection of products a business pushes onto you to sell. You can’t really give preferences or promote them selectively. Sometimes, you even have to pretend to like a product just to sell it. 

However, affiliate marketing gives you more freedom in this regard. Affiliates are at liberty to choose from the list of products the ones they find most suitable for their audiences. With involved affiliate marketing, publishers even have to test the product themselves before offering it to others. 

So, here, we can also say that affiliate marketing is more authentic than MLM, which is crucial for creators who don’t want to lose their followers’ trust. 

Now Over to You

Alright, now we can see that affiliate marketing and MLM are two entirely different strategies. 

Of course, both involve people who market and sell products, but the hierarchies are very contrasting. 

Network marketing companies depend on the number of people involved in the pyramid. Meanwhile, the focus of affiliate marketing is strongly on promoting the product to the right audiences. 

Both strategies also differ in how they approach a customer – MLM focuses on direct communications, while affiliate marketing usually doesn’t involve personal interaction. 

Another crucial factor differentiating these marketing models is the startup cost – MLM often requires you to put in some investments, but you can do affiliate marketing entirely for free (minus the money you’ll have to spend on content creation). 

However, both are viable ways to make money if you approach them right. 

Have you found this article interesting? 

We have more coming on our blog, so stay tuned!