Network Marketing vs Affiliate Marketing – Pros and Cons
Which is a better way to make money, network marketing or affiliate marketing?
It seems like everyone who is involved in network marketing is saying that this is the better option while everyone that is involved in affiliate marketing is telling you that their way is better, so which is it?
Here I'm going to compare network marketing vs affiliate marketing, side-by-side. I'll get in as much detail as possible, hopefully covering everything you need to know so that you have a better understanding of how they match up and which might be a better opportunity for you in particular.
What's best for one person might not necessarily be best for the next person.
I first was introduced to network marketing at a very young age, not by joining myself, but by my stepdad joining more than one different network marketing company, which included Ambit Energy and some other opportunity that sold Acai berry drinks (don't know the name).
I've never actually been personally involved with network marketing opportunities but I have been around them for quite a while and know how they work inside and out. I know the goods and bads of the business along with why they might be a decent opportunity for some people but not so much for others.
When it comes to affiliate marketing I am personally involved. I have actually been affiliate marketing since 2015 and have extensive knowledge in the industry.
So anyways... Now you know little bit about me. Let's get to it…
Both network marketing and affiliate marketing are similar in a lot of ways, yet very different. Start off talking about the similarities…
Similar, Yes... But Very Different
Since you are looking into these types of opportunities you are probably looking for a way to work from home. Both network marketing and affiliate marketing allow you to do so.
Network marketing and affiliate marketing are business models for marketing products where you, the marketer, are part of an independent sales force. It is a good business model for the company because they do not have to worry so much about advertising costs or anything like that. They simply let representatives go out and sell the products for them. And, it is also good for the individual because it creates an opportunity for them to work from home, where one can "write their own paycheck" in a way.
Both network marketing and affiliate marketing are…
- Home business opportunities - You are able to work from home "with" a company rather than "for" a company.
- Flexible - You are your own boss so to speak. This means you can work whenever you want to and make your own schedule. But of course you reap what you sow. Neither opportunity is a chance to slack off and make easy money.
- Low startup costs - Compared to traditional brick and mortar businesses, both of these opportunities have very low startup costs, which is one of the reasons they are so enticing.
- Don't need your own products - Another luring aspect of both of these businesses is that you do not need your own products. You simply join an opportunity and promote the products that they have. This makes starting your own home-based business a lot more easy.
They are very similar in these ways, yet very different. Before we get into how exactly they differ, let's go over in detail what each business model is and how they work... Starting with Network Marketing...
Network marketing is the same thing as multi-level marketing, or MLM. So I'll be using these two terms interchangeably.
It seems that network marketing was more of the original term and MLM started coming into the picture more as these sorts of opportunities started focusing more and more on recruitment, creating fancy and confusing compensation plans.
But anyways, what is network marketing?
In a nutshell, it is a business model where anyone can join in on the business opportunity as an independent distributor and then create a "network" by recruiting in other members beneath them, into what is called a "downline". The purpose of building a network and recruiting more people in is, of course, to make more money.
Network marketers participate in direct sales, which is when products are sold directly to consumers. There is no need for retail stores or anything of that nature. The network marketer may purchase products at wholesale prices and sell them at a markup price directly to the consumer, or they may have their own replicated company website where they refer people to purchase products.
So there are 2 basic ways to make money: by selling products directly and by recruiting in other members.
You earn money by recruiting in other members because commissions are passed up. So if you were to recruit in Robert, you could earn commissions based on his efforts. And if Robert were to recruit in Joe, both you and Robert would earn commissions from the efforts of Joe. And if Joe were to recruit in Susan then you, Robert, and Joe would all earn commissions from the efforts of Susan selling products and recruiting and people beneath her.
The number of recruit levels that you can earn commissions from varies greatly depending on the company and the particular compensation plan in place. The very structure in which commissions are passed up also varies, but every MLM out there has one of the following 3 basic structures…
As you can see, they all have a pyramid-like shape to them. You recruit in new members and they go beneath you. Then they can recruit in new members and they are placed beneath them, and so on. There is big incentive for everyone to keep recruiting in new members because of how one can earn commissions from building a downline like this.
This is a business model that you sometimes see companies switching to because of how lucrative it can be.
Just think about it for a second… These companies allow the independent sales force of network marketers to deal with all the advertising and promotion. They gladly do this because they are 'incentivized' to do so with the hopes and dreams of earning big money selling products and recruiting other members into their downline.
You often see network marketing opportunity spreading like wildfire because of how much incentive there is to recruit in a bunch of members and build a large team, in which commissions will flow up into your bank account.
Isn't This a Pyramid Scheme?
This looks just like a pyramid scheme doesn't it?
They both have the same basic pyramid-like structures where commissions are passed up to people above, but there is a big difference. The big difference is that pyramid schemes (in their pure form) don't sell any products. They rely solely on the incoming investments of new recruits, as described in an article by the FTC.
Legitimate network marketing opportunities sell real products, AND, much of their revenue comes from sales to the general public.
You often have pyramid schemes disguised as network marketing opportunities in which participants are forced to purchase products. While the revenue in this type of situation is still coming from the sale of legitimate products, it doesn't count because they are forcefully purchased products. Some of these opportunities could also be considered leaning more towards the pyramid scheme side of things when they focus too much on recruitment rather than product sales.
This video does a pretty good job at explaining things:
The reason pyramid schemes are illegal is to protect the public. The way they are set up most people are guaranteed to lose money after joining. That said, the funny thing is that network marketing opportunities aren't much better, if at all. In fact, in a recent comparison post I wrote on MLM and pyramid schemes I talked about a study that found around 99% of people who join network marketing businesses lose money (more on this later).
I know, I know... a shocking revelation.
The Process of Getting Started in Network Marketing:
When it comes to network marketing you really want to do your research before getting involved with a company. Finding a reputable company that sells good products is a must. Remember, you're going to have to do direct selling, which means that you likely are going to have to go out and interact with people face-to-face, trying to sell them on the particular products or the business opportunity.
You also are going to want to look into market saturation. The problem with MLM's is that, because they rely so heavily on recruitment, the more saturated the market becomes the more difficult it is for the independent distributors to make money, since it is more difficult to recruit in new members.
When you first join an opportunity you usually have to purchase some sort of "starter kit" which gives you a range of products that the business sells as well as business materials, such as access to a back office, a replicated website you can send people to for purchasing products, marketing materials, etc.
You might also get some formal training, and often times the person that recruited you into the business will provide you with some training, because of course it is in their best interest since they make commissions based on how well you do.
Pros of Network Marketing
- High income potential - There is plenty of income potential IF you are able to build a large downline.
- Low startup cost - Most MLM opportunities do not cost much to join, although there are some that require very expensive purchases, ranging in the $1000+ range.
- Can earn money from the efforts of others - Much of your business will be focused on recruitment and building a team that you will earn commissions from.
- No special requirements to join - Anyone can join these opportunities as long as they live in the right areas. You don't need any special degrees.
- Flexible - You are your own boss. This is a type of job that you can do in your spare time when starting out, which is one of the reasons these opportunities are so easy to get started with.
- Performance based - You reap what you sow. It's not like some hourly wage job where no matter how hard you work you get paid the same amount.
Cons of Network Marketing
- High turnover rates - MLMs are known for having very high turnover rates and for good reason. I will go into more detail why this is the case in a bit.
- Good chance you will make little to nothing - This goes along with that mentioned above. I will get into more detail on this shortly, but for now just know that there's a good chance you will make little to nothing. Statistics don't lie, asa you will see.
- Have to pay to join - Most opportunities require you to make some sort of purchase in order to join, as mentioned. You might also have to pay on a monthly basis.
- Must be a people person - While some business can be done online, you are definitely going to have to be a people person to be successful with an opportunity like these because face-to-face contact is how most of the business happens.
- Can be annoying - You are going to have to be ruthless when it comes to selling products and recruiting in new members. You more than likely are going to come across as annoying to many people. You will have to get used to this.
- You don't control the products - You have no control over the products. You are simply an independent distributor for the company. They control products.
- Can take a while to get going - You will, without a doubt, have to work for pretty much free when you are starting out. It can take a while to build a customer base, to recruit a sizable amount of people into your team and so on.
Affiliate marketing is similar to network marketing in some ways. As an affiliate, you are also a part of the independent sales force. You are affiliated with the company but do not actually work "for" them, but rather "with" them.
The basic structure of the business model is that you, the affiliate, earn a commission when you help make a sale. And you ONLY earn commissions from your sales. It is not like MLM where some of your potential earnings are passed up to the people above you. Likewise, you do not earn money from other affiliates and there is no recruiting involved.
*It may seem like a downside that you can earn money from other people's efforts, but it actually isn't. I'll go over undeniable proof of this in a minute.
It is a win/win for both parties (the affiliate and the business) because the business gets more sales and the affiliate earns commissions from the sales. Both parties profit from this sort of collaboration.
Unlike network marketing, affiliate marketing is almost entirely done online. The basic process goes like this…
- You promote products via affiliate links
- Someone clicks on your link and is directed to the seller (Amazon for example)
- They purchase the product
- You get paid a commission
There our tons of different affiliate programs out there, most of them pay percentage commissions. For example, Amazon pays up to 10% commissions and there are others that pay as high as 70 to 80% commissions. It all depends.
Example: You promote an awesome Ninja blender that is available on Amazon. It costs $200 so when someone clicks your link and proceeds to purchase it, Amazon will pay you 10%, which in this case is $20.
I know that isn't much but that is one simple example. Amazon doesn't really pay much and there are plenty of other opportunities out there, some where you can earn commissions of hundreds and even thousands of dollars from one sale.
Direct & Indirect Affiliate Programs
There are many different types of affiliate programs out there, both direct and indirect.
Amazon has the largest affiliate program in the world and theirs is direct, meaning that to join the program you sign up directly through them.
Many other companies don't want to have to deal with all the work of running their own affiliate program, so they outsource the work to an affiliate network, such as Commission Junction, ShareASale, etc.
But it doesn't really matter to the affiliate. Either way you are getting paid the same way, by promoting products and helping make sales. And while you would think that a direct affiliate program might pay higher commissions, since there is no middleman, this doesn't necessarily seem to be the case.
The Process of Getting Started in Affiliate Marketing:
There are lots of different ways you can go about promoting products and earning commissions.
You can promote products through social media, through a YouTube channel, on forums, and so on. What I have found to be most successful, and most people will agree with me here, is promoting products through your own website, which you have complete control of.
Many affiliate programs require you to have your own website anyhow, such as Amazon's affiliate program that I've been talking about. So this it's pretty much a must if you want to get started in this business. And it's not nearly as difficult to create a website as you may think. The Wealthy Affiliate training program makes it simple.
Joining a program, unlike network marketing, requires no purchase. Affiliate programs are completely free to get started with.
Usually you submit an application online and wait for approval. It depends on the program, but this usually does not take long and is a very simple process.
The short video below gives a good explanation as to how this all fits together.