Affiliate Marketing Vs MLM – How are they different?
After I published my post on “what is affiliate marketing“, I got the above question from one of my email subscribers. He happened to pick on the term, “word of mouth” that I had frequently used in my post.
His question was a genuine one and hence I thought I would answer it in a post.
So here’s the question –
I see you referring to “affiliate marketing” as marketing using “word of mouth”. I have attended a few of those meetings that Multi-level marketers do and they too claim to be marketing using the “word of mouth”. If so, then how is affiliate marketing different from multi-level marketing
Before I started off with this entire digital marketing thingy, I had a tryst with Multi-level marketing as well.
PS: While we are on that, did you know that Feedspot rated my blog, dkspeaks.com as one of the top 50 digital marketing blogs in India? Do check out the list to know which other blogs are there on the list.
It was somewhere in 1998, when I was first introduced to MLM by one of my very close acquaintances. Fortunately for me, I was introduced to it the right way, which wasn’t the case with a lot of others.
MLM entered India at around that year and the next couple of years were huge. There were multiple companies who launched their MLM businesses during this time and MLM became a craze.
But everything wasn’t fine with the entry of multi-level marketing.
People started promoting it as a get-rich-quick scheme and the entire marketing methodology soon became notorious for scams and misrepresentations.
Multi-level marketing then, started to be considered a synonym for the “Pyramid Scheme” and “Money Chains”.
But did MLM deserve it?
We will need to understand MLM a little more closely for us to find that answer. Let us quickly understand how MLM works and what was wrong in the way it was being promoted and then we will dive into a comparison – Affiliate Marketing Vs MLM.
What is Multi Level marketing and How does it Work?
It was in the year 1998 that I was first introduced to multi-level marketing and it was through the Amway business. My sponsor (an MLM term used for the person who introduces you to the business) was one of the first to get into the business when it started in India.
He had spent a lot of time understanding the model and how it worked. He also spent a lot of time understanding the company and it was then that he spoke to people like me.
His knowledge of the business model was evident in the way he explained how it worked.
And that is why I said that I was fortunate to be introduced to it the right way.
The concept was pretty simple.
The company that manufactures a certain set of products (primarily, FMCG in the case of Amway excluding their Nutrilite range), decides to eliminate middlemen and all of the investment in advertisements.
Most FMCG companies spend around 8-10% of their revenues on advertisements. That is a huge investment in itself.
Now this company instead decides to rely on the user-experience of its consumers to promote their products. This recommendation is hence called “word of mouth” because a user talks about their experience and promotes their product.
But then the question is, where is a “BUSINESS” in this model?
Here is how it works –
- The Company saves X dollars by eliminating ad spends, middle men etc.
- They pay these X dollars that they saved, as commissions to their consumers who promote their products using “Word of mouth”.
Simple, isn’t it?
It’s a win-win for both the company and the consumer.
But how does it work for the Consumer?
Here is how the model works –
- The company gives an option to their consumers who are already happy with the quality of the products that they used, to join their business model as “distributors”
- As distributors, they will have the following privileges –
- they can buy the products at a discounted price for their consumption
- they can sell the products at the MRP and keep the profits
- they can earn commissions on the volume of purchases that they make (in other words, sales volume from the company’s perspective)
- they can onboard other consumers as distributors with the same privileges.
While the first 3 options are beneficial from the consumer’s standpoint, the real business and a lucrative one was the fourth option.
Let me explain.
Commissions in an MLM works in a tiered system. As the sales volumes increase, the commission increases.
How do you increase sales volumes, if you aren’t keen on reselling products?
You do it by introducing others as “distributors” to the business. All of the purchases that they make for their consumption or, for reselling is also counted as part of the sales volumes for the distributor who introduced them to the business.
So, if you had to reach the top tier commission levels, all you had to do was introduce a lot of distributors to the business, who too had the option of following the exact same model.
These distributors also earn other incentives based on their performance (read, volume of sales)
These “distributors” have an option of introducing other like-minded people into the business as “distributors” and consumers and they further have the same option to do so.
Check out the below image to know how it works.
You can see how the entire model forms a network of distributors. This is probably why this business model is also called as “Network Marketing”.
While this is a rough picture of how the business model works, there are a lot of details that are very specific to companies and the business offers some extremely lucrative benefits to its independent business owners (as they call every distributor in the MLM model).
So in a nutshell, here are some of the characteristics of a Multi-level marketing business model.
- The business model when put on a paper looks like a network and hence the name Network Marketing
- New business owners are always brought into the business by existing business owners
- The introducer is called a “Sponsor” and is part of the upline in the business
- The new business owner forms the downline for his sponsor and is the upline for anybody who he introduces into the business
- The business owners also have an option of reselling the products for profit.
An MLM business is a genuine business unlike the Pyramid schemes and money chains it is usually compared to. But then how did it earn the bad name?
The problem with an MLM business was the business owners. Just like in any other business including affiliate marketing, people wanted to make a few quick bucks.
So instead of explaining the entire business model to new business owners, they were told that they will earn commissions solely for the act of “recruiting” other business owners. This took out the entire “sales volume” piece (which actually is the most important part of the business model) out of the equation and made it look like a money chain.
And when people found that they have been lied to, they started calling it a scam.
Now onto the final piece – Why did I leave MLM, if it was that lucrative?
It simply did not work out for me because of multiple reasons. You can read more about it in my about page.
Now that we got a fair understanding of the MLM business model, let us look at how it compares to affiliate marketing. So onto Affiliate marketing Vs MLM.
Affiliate Marketing Vs MLM
In one of my earlier posts on “What is affiliate marketing“, we discussed in detail about affiliate marketing. But for the sake of defining it, here is what affiliate marketing means –
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
We also saw what Multi-level marketing is all about. To put it into perspective, here is how we can define it –
Multi level Marketing, also known as Network Marketing or, Direct Marketing is a marketing strategy in which a business empowers its customers to adopt a distributorship for their products and encourages them to bring in more customers as distributors (typically called as downlines) and are then paid for all of their consumption as well as their downline’s consumption by way of commissions on the total sales volumes.
A first hand look at both these definitions and a detailed study of these business models shows that there are a few similarities when you do an affiliate marketing vs mlm comparison.
Common things between Affiliate Marketing and Multi Level marketing
Here are the things that are common to both these business models –
|S.No||Affiliate Marketing||Multi Level Marketing|
|1.||Relies on recommendations (Word of Mouth)||This model also relies on Word of Mouth|
|2.||Pays commission for sales||Pays commissions based on sales volumes|
|3.||Affiliates are responsible for promoting the products||Distributors are responsible for promoting the products|
|4.||Have a tiered program whereby affiliates also earn commissions on sales done by affiliates that they referred.||Distributors earn commissions on sales volumes done by the distributors that they refer to the business|
But then, that’s where the similarities end.
There’s a lot that aren’t common between these 2 business models and these are the potential reasons that give affiliate marketing the edge.
Difference between Affiliate Marketing and Multi level marketing
Let us look at some of the things that are not similar in both these business models –
|S.No.||Affiliate Marketing||Multi Level Marketing|
|1.||Every sale has a commission associated with it||Commissions are paid only when a particular amount of sales volume is achieved|
|2.||Joining an affiliate program is FREE and there are no entry fees or, charges||Some companies charge an entry fee or, joining fees|
|3.||In tiered programs too, commissions are paid on a per-sale basis||Commissions are paid when a particular sales volume is achieved|
|4.||No concept of reselling or, maintaining inventory||One of the earning channels for distributors is to buy products, stock them, and resell them for profits.|
When you look at the above differences between affiliate marketing and MLM, you will realize the reasons why affiliate marketing is the easier of the two.
Advantage # 1 – Affiliate Marketing doesn’t involve a lot of hard-core selling
In Affiliate Marketing, you don’t really have to rely on what others think about the business or, if they are willing to join your network. This can be extremely stressing, especially because of the hard-core selling skills that you need to exhibit
Writing a pre-sell copy also requires selling skills but I believe it is easier of the two, if you ask me.
Advantage # 2 – No sales targets to achieve
Another drawback in Multi-level Marketing is the need to achieve sales volume levels to be eligible for commissions. So, if you do not achieve these levels then all of the efforts that you put in goes waste.
Unlike this, in Affiliate Marketing you are paid commissions for even a single sale. The only caveat is that you might not be able to withdraw these commissions to your account till the payment threshold is achieved, though not in all cases.
For eg: Affiliate networks like JVZOO and Warrior Plus, payout commissions immediately as the sale happens.
So your efforts, even if it is just a single sale, is rewarded.
Advantage # 3 – No restriction on what to promote
The biggest disadvantage with MLM is that you are tied to a specific company and can only sell or, promote their products. If for some reason you find that their products are really converting (for whatever reason), you don’t have a choice of switching to a different product.
In Affiliate Marketing, there are no such restrictions. You can promote anything and everything.
For eg: Within an affiliate network like CJ, you will be able to see multiple products from the same niche. You can promote any or, all of those products and commissions earned on any of them, even if it is on a single sale, cumulatively adds up to your total commissions, which are eventually paid out to you when you reach the payment threshold.
This is one the biggest reasons why only a few people in the network actually make money in Multi-level marketing and probably also one of the major reasons for MLM earning a bad name.
What’s Your Thought – Conclusion
I hope this comparison of Affiliate Marketing Vs MLM would have helped you understand both these business models in detail.
Which out of these do you think is a better model?
Did you ever have any experience with a Direct Marketing company?
Do comment and tell us about your thoughts. And if you liked this post, please share it with your social media friends by hitting one of the share buttons below.