Difference Between Network Marketing And Pyramid Scheme – You should. Additionally, the world of marketing offers many opportunities for those who have a large network of connections and want to take advantage of them.
Today, we have two such opportunities: multi-level marketing (MLM) and affiliate marketing. We’ll discuss their nature, benefits, and differences to help you understand which one is best for you.
Difference Between Network Marketing And Pyramid Scheme
Multi-level marketing (aka network marketing) is a form of direct marketing in which a company sells products through non-employee sales teams using a pyramid commission system.
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As a member of an MLM business model, you earn a commission by selling a product directly to a consumer or to other distributors you have hired as part of your sales network.
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.
A sponsor is usually responsible for recruiting new recruits to sell a product. Essentially, they create a team of salespeople, who are not part of a company, so they don’t receive a salary but may earn a commission.
Distributors are the sellers we talked about in the previous paragraph. They too can become sponsors if they recruit enough new people and create their own team.
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Finally, recruits are the team members working with the distributors. They can also move to the next level if they bring enough people into the team.
So, in theory, any MLM participant can move up the pyramid if they attract enough customers and create their own network of recruits.
Take a look at this graphic representing the MLM pyramid with the hierarchy of the main players that compose it:
Imagine a business owner approaches you and says, “Hire five of your friends to sell our product. » You bring in these friends, who become independent distributors – they don’t work for a company or for you, but you and your friends earn a commission on product sales.
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Then your friends each bring six of their acquaintances, who become recruits and also earn commissions on sales with you and your six distributor friends. As these recruits bring in their own recruits, the bottom of the pyramid grows, resulting in a multi-tiered sales process.
If you look closely at the pyramid, you can see the arrow on the right going up and down. This arrow reflects the two directions that multi-level marketing can take:
The commission amount varies depending on the source, how many products you sell, and how many new people you attract.
No, with the main difference that multi-level marketing is legal. However, there is a lot more to these two than meets the eye.
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Pyramid schemes are an illegal form of MLM, where people must pay to remain part of the scheme. Essentially, they have to pay for membership and purchase products which they then have to distribute. During this time, founders earn commission on membership and products sold to members.
Unlike MLM, a pyramid scheme is a scam that focuses primarily on recruiting people rather than acquiring new customers. Thus, only people at the top of the pyramid can earn substantial income; those at the bottom typically lose more money than they make.
With that out of the way, let’s now look at some examples of businesses that use multi-level marketing to sell their products.
It operates as a multi-level marketing model, hiring people daily to sell and market its products. The hiring process takes place at what are called Tupperware Parties – marketing events held at the home of a distributor or sponsor.
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During these evenings, distributors demonstrate products and recruit new recruits. Since the start of the pandemic, these parties now also take place online.
Tupperware’s 2017 revenue disclosure indicated that more than 97% of active distributors earned around $700 per month, making it a good side income.
The company has been running its MLM program for 15 years. In its 2015 earnings report, Avon announced that the average representative earned $135 per month. This is not too much, considering that you also have to pay a membership fee.
Based on what we’ve discussed so far, you may be wondering: is network marketing really worth trying?
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You would be right to hesitate; many people do this when they hear about sales models based on the pyramid hierarchy.
If we talk about Avon, the startup payment can be as low as $5 (the amount depends on the registration option chosen).
Herbalife, another example of an MLM, charges its members around $15 at the end of each year. However, with this program, you also cannot make money by sponsoring or hiring someone – you must sell products.
The most expensive membership we could find was from Amway, which sells beauty, health, and home care products. Each member must pay just under $100 per year, but this amount is fully refundable if you decide to leave the program.
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First of all, you must have the qualities of a salesman. In other words, you must be sociable and outgoing, persuasive and a good communicator.
However, it doesn’t matter if you don’t like the product you are selling as part of a multi-level marketing company. Liking the product means you will also know it at a level that will make you a competent expert, able to convince others of its value.
Another important thing is to know the market well to understand when and where there is demand for the product you are selling.
Finally, it is also essential to accept the negative sides of MLM. Many people fail to break even because they initially had very high expectations of how much money they would earn, and this is also one of the reasons why only 25% of participants make profits. profits.
Mlm Vs. Affiliate Marketing: Which Is The Right One For You?
Ultimately, you can make a good income through MLM, but you need to do your homework and research the program that interests you.
Many people get into multi-level marketing as a side hustle to make extra money, and for some, it turns out to be worth it.
However, some companies boast even higher revenues from their distributors. For example, Herbalife representatives can earn over $3,000 per month, with the lowest commission at $300, which isn’t bad either.
Ultimately, it all depends on the requirements of the MLM company and your efforts as a representative to market and sell products.
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Affiliate marketing is an advertising model in which a brand hires people (affiliates) to promote and sell its product or service in exchange for a commission.
You can learn 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 seller can be a startup, a small business, an individual entrepreneur or a large company (e.g. Google AdSense).
We may also consider a dropshipping merchant a seller if they decide to use affiliate websites to advertise their e-commerce business online. A B2B company can also do the same to promote its services.
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An affiliate (publisher) is a person or company carrying out promotional activities to market the seller’s offerings to the target audience. For example, it could 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 his own company.
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 must always inform the consumer that they are affiliated with the company whose product they are selling.
To implement affiliate marketing into the overall digital marketing strategy, a brand usually launches an affiliate program, which includes the list of products it expects affiliates to promote, chooses the model of payment (we will list them later) and sets commission rates.
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Then, the brand attracts new affiliates to the program. Once registered, they can choose the product they want to promote and the program generates a unique referral link for them. By tracking the links, the brand can know which sale is coming from which affiliate.
Then, creators launch promotional efforts (creating videos, writing blog posts, or posting on social media) for lead generation. They include the affiliate link in the content and must inform the target audience that the content is affiliated.
The end goal is for the consumer to purchase a product through the affiliate link. If this transaction occurs, the brand gets a new customer and the affiliate earns a commission.
There is also a pay-per-install option, in which the referrer earns money when the consumer uses their affiliate link to visit the seller’s website and download their product (software, app, etc.).
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Now let’s look at some affiliate program examples to see what this strategy looks like in action.
Amazon offers one of the most popular affiliate programs. Amazon Associates brings together influencers, bloggers and publishers who promote Amazon products and services on their channels and receive a commission in return (it can be up to 20%).
We’re not exaggerating when we say Amazon’s program is among the best: it has the highest market share at 44.68% and more than 90,000 businesses use it. Thus, Amazon earns a significant gain
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