These two business models have been hot topics recently! It seems that they are both highly sought-after home business opportunities, so I decided to do a little research and see what they both are, and what the similarities and differences are between them. Hold on tight, I suspect this could be quite a ride!
Table of Contents
What Is Online Or Affiliate Marketing?
NB If definitions are not your thing, scroll a little way down to How Does Affiliate Marketing Work? [Infographic]
The way I see things there are two different business models here too, one being Online Marketing and the other being Affiliate Marketing. So just to clarify, we are discussing them as the same in the context of this article. For “arguments sake” though, let’s see what our good friend Wiki has to say about each of them:
Online Marketing
When I searched for Online Marketing (so it is safe to say that they are interchangeable), Wikipedia came up with Digital marketing and here is the definition:
Digital marketing is the marketing of products or services using digital technologies, mainly on the Internet, but also including mobile phones, display advertising,and any other digital medium.[1] Digital marketing channels are systems based on the internet that can create, accelerate, and transmit product value from producer to the terminal consumer by digital networks.[2][3]
Affiliate Marketing
On searching for Affiliate Marketing, I received the following much shorter definition:
Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.
Wikipedia does go on to describe the similarities between online and affiliate marketing an online marketing as you can see below:
Structure
The industry has four core players:[citation needed]
- the merchant (also known as ‘retailer‘ or ‘brand‘)
- the network (that contains offers for the affiliate to choose from and also takes care of the payments)
- the publisher (also known as ‘the affiliate’)
- the customer
The market has grown in complexity, resulting in the emergence of a secondary tier of players, including affiliate management agencies, super-affiliates, and specialized third party vendors.[citation needed]
Affiliate marketing overlaps with other Internet marketing methods to some degree, because affiliates often use regular advertising methods. Those methods include organic search engine optimization (SEO), paid search engine marketing (PPC – Pay Per Click), e-mail marketing, content marketing, and (in some sense) display advertising. On the other hand, affiliates sometimes use less orthodox techniques, such as publishing reviews of products or services offered by a partner.[citation needed]
So, to cut a long story short, both Online Marketing and Affiliate Marketing make use of the Digital Marketing Channels. That is the similarity we are referring to today.
How Does Affiliate Marketing Work? [Infographic]
After tasking my brain with definitions (which are not my preference by the way), I decided to share an infographic with you about How Affiliate Marketing works.
Take a look at the handy infographic below. Being a visual person, this is far easier for me to relate to.
Point 1 is the customer doing an online search, this could be through social media or Google, or Bing, or Yahoo.
Point 2 Provided the Affiliate Marketer has positioned themselves well, the customer will land on their relevant niche website.
On that website the affiliate marketer could have written a review or a comparison (not unlike the one you are reading now) of the product the customer is searching for.
Point 3 Once the customer is convinced of the best product to buy, they click on the link provided in the Affiliate Marketers website and make a purchase.
The product will be from any one of the sellers that the Affiliate Marketer is connected to (as you can see from the infographic, Walmart, etsy, Amazon and EBay are listed. Many companies offer products through affiliate programs so the purchase could be directly from the manufacturing company, Nike for example).
Point 4 is the last point in the cycle, this is where the Affiliate Marketer generates revenue and every one is happy!
The Customer is happy because he or she has done their research and found the right product; the Merchant (Retailer or Brand) is happy because they have sold their products; and the Affiliate Marketer because they’ve generated revenue and earned a commission.
If you would like a more detailed article about Affiliate Marketing, I have prepared that for you too – here it is and is called What Is Internet Affiliate Marketing?
What Is A MLM (Or Multi Level Marketing Company)?
Back to our friend Wikipedia we go for a definition:
Multi-level marketing (MLM), also called pyramid selling,[1][2] network marketing,[2][3] and referral marketing,[4] is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
As an aside from me – pyramid selling has quite a bad reputation from what I understand. From my perspective, MLM is a valid option in comparison.
What Do Affiliate Marketing and MLM Have In Common?
- Products Affiliate Marketers and MLMers do not own their own products or services. Both sell and market products that belong to someone else. In the case of an Affilite Marketer this is typically more than one Retailer or Brand, specific to their niche. For the MLMers it is the product range belonging to one company.
- Commission Earners Both Affiliate Marketers and MLMers generate an income by way of commission earnings.
- Digital Skills Affiliate Marketers and MLMers are both very active in the digital space. Affiliate Marketers build websites and/or funnels and market online via those platforms, also sharing on social media and making use of email marketing. From what I have seen, MLMers tend to market primarily via social media. Some MLMers are extremely active online, others less so, sticking with the traditional face to face meetings and presentations. I suspect they will catch up very soon. It’s the way to create an international business, after all, there are 4 billion people online – either to shop, for looking for ways to make money online and a myriad of other things.
What Are The Differences Between Affiliate Marketing and MLM?
Difference Number 1 – Commission Structure / Compensation Plans
Typically Affiliate Marketers earn a percentage of a sale, there are other things like pay per click where the Affiliate earns on the clicks through to the Retailer or Brands website, but for the purposes of this comparison, we will stick to percentage of sale. These commissions vary from Retailer to Retailer and Brand to Brand, anywhere between 5% and 75%.
The MLMers payment structure is far more complex than Affiliate Marketers, plus there is more than one type of compensation plan. For ease of comparison, let’s look at the three most common: Unilevel, Breakaway and Binary.
Ah, before we go there, we also need to take in account the fact that MLMers can make money in two ways. One is commission from direct sales to consumers (or the difference between their purchase price as a distributor and the retail price to the end user); the second is to earn an income from the commissions made from the sales of their downlines (that is distributors that the MLMer has recruited into the MLM business).
Unilevel Commission –
- Pays an equal percentage on commissions from downline sales to all qualifying distributors. (A qualifying distributor is one who has met certain criteria in a given period of time, for example, they have met a certain revenue amount, like a target, or points in a period of time. Mannatech used to call that PV which is Point Volume which is points allocated to the different products. This could be the products your have bought for yourself and it could be a combination of your own purchases ans sales you have made). I did say this structure was complex 🙂
- The Unilevel compensation plan is designed to encourage recruitment of distributors rather than level or rank-based commissions. (If I look at Mannatech again, you earn different percentages depending on your level within the organization. Have a look at the image below, you start as an Associate and as your grow what is known as the legs of your business you rise up in rank. Associate to Director to Executive to Presidential. There are three steps with each level and there are differing percentages depending on your level too). So recruitment and management of your downlines is key to your success with the Unilevel Compensation Plan. Affiliate Marketers do not have to recruit and manage downlines or teams. Income is purely based on their sales
- There is also something called a “hybrid unilevel compensation plan” this is where distributors are also paid commissions for self-explanatory plans like:
- fast start,
- pool bonuses
- rank based bonsues
- and something called infinity commissions
- I left this until last because it takes some explaining. From what I can understand, if you recruit 3 people and assist the third recruit to build a downline of 2 more recruits, you qualify for infinity commissions. This of course varies from company to company but gives you an idea of how an infinity commission works
Breakaway or Stairstep Compensation Plan –
With the Breakaway or Stairstep plan – which is the oldest plan around – as sales people meet their group and personal targets, the advance up a step. This continues until they reach the top step. Once the MLMer reaches this point, they break away from their sponsor (or introducers) group and no longer a downline distributor. As can be expected, the higher up the stairs one goes, the higher the commission earned too.
Binary Compensation Plan – with this plan MLMers are only required to recruit two downline MLMers. This can be seen as a good thing because your recruitment requirement is lower than other plans.
The Binary plan is the least complex that i have seen. it does have a limitation though and that is MLMers are required to ensure that the sales of the two downline distributors is sufficient to meet the total sales for everyone to meet a predetermined earning percentage.
Difference Number 2 – Business Model & Earnings
MLM
One of the primary functions of an MLMer is to recruit and train their downlines or team in order to meet requirements of the compensation plan. As mentioned earlier, some compensation plans in the MLM industry are very complex, I suspect actuaries are appointed to put these together, lol!
Affiliate Marketing
Typically, Affiliate Marketers do not have to recruit anyone in order to generate revenue, they earn commission on sales. Having said that, there are Affiliate Programs which involve sharing the Affiliate Marketing opportunity and earning commission on sign-ups. The commission stops at one level, there are no downline earnings though. So it is safe to say that Affiliate Marketers earn commission on sales, it’s a less complex business model and far simpler to calculate earnings too.
Difference Number 3 – Earnings
MLMers earn commission on their own sales and those of their downlines. At first glance, this has great advantages – in MLM you get to earn on the sales others generate. How cool. Wait a bit, not all cool. You are responsible for recruiting and training these downlines, plus there is a drop out rate of more than 90% – so recruitment is a consistent and ongoing forever. Plus, your earnings are affected by your downlines. The digital space has made this easier on MLMers as it is possible to run your business online, never have to physically deliver products or even meet anyone in person to recruit them or sell to them.
Affiliate Marketers generate revenue on their own sales, they are one hundred percent responsible for their earnings. In Affiliate Marketing there is also a drop out rate of over 90% (some even say 99%!), this is a good thing for Affiliate Marketers who stay the distance, because it means less competition.
What Is The Biggest Risk In MLM Vs Affiliate Marketing?
Trust me when I say that you truly do need to pay attention to what I have identified as the biggest risk.
As a network marketer in MLM you build “your business” without having your own products or systems. This is not different from Affiliate Marketing.
However, when signed up as a Network Marketer for say Mannatech, it is unlikely that they would be happy to allow you to also sign up with a potential competitor company, say Herbalife, for example.
I cannot confirm this but suspect there will be some sort of restraint of trade placed on network marketers to prevent them from syphoning off business from one company to another.
The real danger with this is that you are at the mercy of the company you have signed up with. Should anything happen to change the company’s business practices, you could end up without a business at all.
Think it won’t happen? Think again!
A company called Javita operated in the MLM space from inception and then this happened: Javita literally abandoned the network marketing model Have a read at the article on Business For Home.
That was after 20 years in the MLM space! They decided to move from MLM to “direct to consumer”.
Can you imagine how that impacted 20 years worth of network marketers who were committed to building “their own businesses” under the Javita umbrella?
Have a look at the comments at the bottom of the article:
“So you engage thousands of “members” to penetrate the market and then cut them off without warning. Unbelievable! On top of that the pricing remains vertually the same as before, even though commissions are no longer being paid out … No free shipping to Canada. i guess I’ll be looking for another product.” Angelina Bolhuis
“As a 30 year veteran in network Marketing and understanding the work that goes into developing a global organization, my heart hurts for those who have been notified that their legacy is gone … I am so very sorry.” Traci Palo
“I do believe that companies have to evolve over time to keep up with current trends but not at the distributors expense. I’ve been in MLM for 20 years nad have been through several changes. Recently our company added a new customer program to address an “Amazon” type of model but did not jeopardize those wanting to build a large team of distributors. Companies should have something in place for all types of builders. Good luck to those involved.” Vickie McLain Burnett
The saddest and most telling comment was this one:
Could this happen to your business as an affiliate marketer? Yes and no.
As an affiliate marketer you are promoting products which you do not own. And yes, you could face the demise of the company who owns the product closing their affiliate program. So, in that sense, you could be at the mercy of others.
However, and this is the biggest difference, as an affiliate marketer you do own your own legitimate business and you have every right to promote products belonging to a wide variety of companies. Yes, even (or especially) competitors.
What this means is that even though you run a risk, you have not plowed everything into building your business on one brand. So, if one of the brands in your niche goes under, much as it is sad to see, your online business is still secure – because you already have other solutions on offer to your target audience.
My Experience
I have been involved with both MLM (also known a Network Marketing) and Affiliate Marketing opportunities – more than one of each (maybe I am a sucker for punishment, lol!).
In MLM I have signed up with a wide range of companies over the years:
- Golden Products (which was cleaning products at that time);
- Avroy Shlain (make up and skin care);
- Honey Accessories (fashion jewelry);
- Mannatech (glyconutrients, health products and skin care)
I have made money and lost money in MLM and though I am quite good at recruiting (not blowing my own trumpet, I was in recruitment for 12 years), I found that recruiting, training and managing a team plus selling products was very labour-intensive.
The potential for the team to impact my earnings was also challenging for me.
If you are keen on the MLM model, I recommend Mannatech. Why? For more reasons than one:
- they have great processes in place,
- really amazing products,
- their social responsibility program is seriously top-notch,
- and I know of an awesome international team I am happy to recommend to you. Just pop me a comment below and it will be my pleasure to connect you with them
To date I have written many reviews of different MLM opportunities, you are welcome to read them and they can be found via this page.
Affiliate Marketing platforms I have joined are SFM and the one I am with now which is by far my Number 1 Recommendation.
I much prefer not being responsible for recruiting and managing a team, certainly prefer not having my income reliant on team members taking action (ever heard of “herding cats”? Yeah, it can be a bit like that).
I choose to work with people within an amazing community. We are all online entrepreneurs with varying degrees of experience and expertise.
The founders of the platform and community have intentionally created an environment of “pay it forward”. As a result, there is a strong sense of comaraderie and willingness to assist one another.
I love being involved with mentoring and guiding others into finding their place of success. It is also best for me when I get to assist others because I enjoy it rather than because my income is dependent on it.
A big plus is that the community gives offers access to success stories which encourage and motivate us all. Affiliate Marketing offers me the opportunity to diversify – I can work in any industry by simply developing a new website in that new industry.
I hope that this article has helped answer the question we started out with, What Is Online Or Affiliate Marketing Vs What Is An MLM (Or Multi Level Marketing Company)? If you have any comments or questions, I would love to hear from you – please drop them in the comments section below.
Thank you for taking the time to visit my site and read what I have to share.
Blessings
Hey Louise!! I like the fact you’ve explain this in simple terms, I was doing a research on that just a few day ago, you just added valued information that is much needed, I clearly understand it more in details by reading your article, What I’m not too clear on is, what is the difference for a small man to get into MLM? isn’t it the same as affiliate Marketing? I can understand big companies, but weighing my options as a small man, which one will gain me more commission, in terms of %? I know MLM is more work, but how much returns do you really received? that is the real question I have.
Hi Earl
That is a great question. The easiest way for me to answer it is to say this:
1. With your own online affiliate marketing business (and this is key because it is your own business, unlike MLM) you get to decide which companies you affiliate for, part of the decision process would be taking into consideration the commission offered by the companies and brands you affiliate for. You can also affiliate for more than one company, the fact that they are competitors does not restrict you as an affiliate marketing
2. When it comes to MLM, you do not get to decide further than the company you are a distributor for. Apparently you can be a distributor for more than one MLM company, according to mlmlegal.com, but “most companies will restrict their distributors’ activities in promoting other companies’ opportunities and products.”
3. With MLM business models, it is typically only the top 1% who make enough money to have a lifestyle change. These are the people who get into the business first. This means it doesn’t matter how hard you work, the likelihood of reaching that top 1% is extremely slim.
4. With Affiliate marketing, your earning potential and success truly is in your own hands: you choose your niche, you choose your products, you choose which companies to affiliate for based on what is best for you and your business. None of this is dictated to you. Have a look at these success stories for evidence
I hope that has answered your question.
Blessings
Louise
Affiliate marketing is catching like wildfire as so many people are seeing the many benefits that are involved. this line of work though rewarding can turn into a full-time business but has its challenges. Wealthy Affiliate offers the kind of training that can help you to own and operate a successful online business. In my opinion, Wealthy Affiliate has the best online training by far when it comes to this line of work.
Hi Norman
Absolutely! We are so incredibly fortunate to have found both affiliate marketing and Wealthy Affiliate – the right industry, the best training, everything we need for our website (domain names, 24/7 support, security and more!).
Thank you for taking the time to share your experience with us.
Blessings
Louise
Very good insights into the differences between affiliate marketing and MLM. Both vehicles have potential dependent on the specific circumstances and a person’s interests and motivations. Thanks for your thoughts on this. All the Best.
Hi Joseph
I agree, there is potential in both, I am definitely more of an affiliate marketing gal, so glad I found it 🙂
With affiliate marketing we can diversify our businesses and create multiple income streams – for me that is the biggest advantage.
Blessings
Louise
Thank you for this very informative article! You explained the differences between Affiliate Marketing and MLM very well. I’ve tried both before, but personally, I like Affiliate Marketing better as I’ve actually had more success with it than when I’ve done MLM. It is interesting to see that the dropout rate for both are at 90%. Why do you think that is?
Hi Brian
Thank you so much for taking the time to read and leave me some feedback. That is an interesting question you have asked, I’ll will give you my opinion on why there is a high dropout rate for both, I stand to be corrected, but this is what I believe:
1. The high drop out rate with MLM is because in this business model you are required to sell the concept and product to your warm market, which is your family and friends. In my experience (of any sales, not just MLM), the people closest to me have been my toughest critics and therefore extremely difficult to sell to, never mind recruit! If you are great at sales and recruitment of people, in addition to being extremely hard-working (read that as tenacious, pitbull level :-)) you may do well. BUT, and this is the big one for me, you also need to get into the game early on, the people sitting at the top (or those who started at the beginning of the business) are those who seem to benefit and make real life style changing amounts of money.
2. The high drop out rate with affiliate marketing is due mostly to poor online education. In this industry, we are not subjected to starting at the bottom of the totem pole, we get to work within an industry or niche that we love and have no-one above us. Our biggest obstacle is the search engines (Google, Bing and Yahoo) – because it is them who make or break our online businesses. Now, if we are members of an amazing platform like Wealthy Affiliate, we have access to all the training we need to build a successful online business, including fantastic tools like Jaaxy which give us the gold – that is the keywords. Wealthy Affiliate does not drip feed us for one fee and then charge more for further information. We have access to everything we need from a training perspective. Not only that, we enjoy the incredible benefits of awesome site support (24/7/365), an incredible community of online entrepreneurs, even access to the owners who are both exceptionally successful people and believe in serving their members. Kyle and Carson set the tone for Wealthy Affiliate and they do an amazing job of it. Can you tell I am a fan? lol! Serious, this ain’t my first rodeo and I can tell you from experience that Wealthy Affiliate is the place to set an online entrepreneur/affiliate marketer up for success!
3. The get rich quick expectations set people up for disappointment. There is no such thing (not legal anyway), creating any business – brick & mortar or online – takes time.
4. Mindset – I maybe should have said this one first – the right mindset is crucial for success in anything we do.
Hope that answers your questions?
Blessings
Louise