When I first started my online business I thought Affiliate Marketing and Multi-Level Marketing (MLM) were the same thing.
This is definitely not true, so I thought I would start with some definitions from Wikipedia:
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. The industry has four core players: 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’), and the customer.
Multi-level marketing, abbreviated as MLM, also called pyramid selling, network marketing, and referral marketing, is a controversial marketing strategy for the sale of products and/or services where the revenue of the MLM company is derived from a non-salaried workforce (also called participants, and variously known as “salespeople”, “distributors”, “consultants”, “promoters”, “independent business owners”, etc) selling the company’s products/services, while the earnings of the participants is derived from a pyramid-shaped commission system. See my related article, An MLM Perspective.
Similarities Between Affiliate Marketing and Multi-Level Marketing
The use of non-salaried salespeople is the biggest similarity between these 2 models. Truthfully, many companies put a significant portion of their marketing budgets into compensating this sales force. With such a large number of non-salaried salespeople companies are able to cover huge geographic areas and reach substantial numbers of consumers without paid advertising. This occurs through a concept called Network Marketing. Entrepreneur.com’s Small Business Encyclopedia defines Network Marketing as “A business model in which a distributor network is needed to build the business. Usually such businesses are also multilevel marketing in nature in that payouts occur at more than one level.” Notice the term “usually” in the definition because…
I believe both Affiliate and Multi-Level Marketing models both can and should employee a certain amount of Network Marketing to achieve greater success.
Differences Between Affiliate Marketing and Multi-Level Marketing
The compensation structure of the sales force is the major difference between Affiliate Marketing and MLM. According to Entrepreneur.com’s Small Business Encyclopedia, “As the business driving an affiliate program, you’ll pay your affiliates a commission fee for every lead or sale they drive to your website.” These commissions are paid on 1 level from the company to the affiliate. Therefore, there is no real component of recruiting in Affiliate Marketing. A common and well-known company that uses Affiliate Marketing as part of it’s sales model is Amazon.
“Multi-Level Marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s downline.” (Read more on Multi-Level Marketing at Investopedia.) Amway is a popular example of a well-known direct-sales company that uses Multi-Level Marketing.
What Is the Importance of Knowing the Difference?
The company employing either of these methods needs to determine which best fits their needs. A direct sales company can prosper with either method.
Therefore, my main concern is that all of my Network Marketing colleagues understand the difference in the compensation structure.
A marketer must sell products or services to be compensated. This is true in Affiliate Marketing or MLM. However, a member of an MLM sales force must be prepared to recruit, and recruiting is not for everyone. If you are unable or unwilling to recruit a downline, you will not survive in a Multi-Level Marketing organization.
If you are new to the Network Marketing industry or if you have struggled up to this point, take a personal inventory of your strengths and weaknesses. Take your time to research and understand an organization’s marketing model and compensation structure. Finally, find an organization that has a structure that best fits your needs and abilities. If you do this, you will achieve greater success and have much less frustration.
To Your Success,