What is affiliate marketing and is it a pyramid scheme?

Affiliate marketing is a type of performance-based marketing in which an advertiser rewards another party (known as an affiliate) for promoting their product or service. The value of this type of marketing stems from the fact that it enables business owners to generate more sales leads and drive traffic to their company website, all while paying only when they achieve results.

The use of affiliate programs is not limited to any specific industry or product, but instead can be found across almost every niche market. This article breaks down everything you need to know about the world of affiliate marketing and whether it qualifies as a pyramid scheme.

What is a pyramid scheme?

A pyramid scheme is a scamming business model where participants earn money not from sales or services, but from recruiting new members. The model relies on a constant influx of new initiates who purchase inventory or services in order to participate in the program—and who, in turn, bring even more people into the fold.

The Federal Trade Commission (FTC) has received complaints about pyramid schemes since the 1930s, when the economic collapse spurred a rush of consumers looking for more affordable ways to make money.
The number of complaints spiked again in the 1980s and have fluctuated wildly since then.

How does an affiliate program work?

Affiliate programs are a type of partnership between a merchant/advertiser and an affiliate marketer/referral. In order to participate in an affiliate program, you must apply and be accepted by the business. You then create unique content, like blog posts or videos, that promotes the business and links to it using a unique affiliate code.

When a visitor clicks on the link and purchases the product, you earn a commission for the sale. Most affiliate programs are paid on a tiered scale, where the commission amount increases depending on the volume of sales you generate.
When the business sees an increase in sales, it will likely reward you by increasing your commission rate.

Is affiliate marketing a scam?

The short answer is no: Affiliate marketing is not a scam. But just because the business model isn’t inherently fraudulent doesn’t mean that it’s a good fit for everyone. Before you sign on the dotted line, make sure you understand how the program works, what your obligations are, and what you stand to gain financially.

Such programs are often not easy money—especially for beginners. As in any type of marketing, you’ll need to put in the time and effort to build your brand and drive traffic to your affiliate links.

So if you’re the type of person who wants to jump straight to the top without putting in the work, affiliate marketing (and probably every other type of marketing) isn’t a good fit for you.

Advantages of affiliate marketing

•  Affiliate marketing is a low-barrier, entry-level type of marketing. If you’re just getting into the field, there are a number of popular affiliate networks that offer free sign-ups and a variety of marketing guides and resources. This is a great way to dip your toes into the waters of marketing and see what you enjoy and excel at most.
•  Affiliate marketing gives you the freedom to create any type of content. If you’re interested in writing, blogging, or video marketing, you can do that. If you’re more interested in photography or design, you can do that too! The possibilities are endless.
•  A large portion of affiliate programs are recurring, which means that you’ll get paid commissions from the same customers over and over again. As long as the customer stays interested in using the product, you’ll continue to earn money.

Disadvantages of affiliate marketing

•  Affiliate marketing isn’t a get-rich-quick scheme: While you might make a decent amount of money by participating in an affiliate program, it’s important to note that this type of marketing is not a get-rich-quick scheme. You’ll likely earn a small percentage of each sale, which won’t amount to a ton unless you generate a massive amount of sales.
•  Affiliate marketing is not a great source of passive income: As we mentioned above, it’s not likely that you’ll earn a ton from each sale. While it’s possible to make a decent amount of money from affiliate programs, it’s unlikely that you’ll ever see a significant amount of passive income.
•  You’re responsible for tracking your sales: Affiliate marketing is a performance-based business, which means that the business owner will only pay you after you’ve generated sales. This can be a good thing, but it also means that you have to track your sales and conversions.

Affiliate marketing is not a pyramid scheme. If you’re thinking about joining an affiliate program, don’t let the pyramid scheme myth scare you.
If you do your research and find a legitimate program, chances are that you’ll make money (maybe even a lot of money) from affiliate marketing.

Now that you know what an affiliate marketing program is, what it isn’t, and the advantages and disadvantages of participating in one, you can make a more informed decision about whether or not you want to earn money from an affiliate program.