Affiliate marketing and network marketing (also known as multi-level marketing or MLM) are two popular business models that offer different opportunities to earn income. But what exactly sets them apart?
This in-depth guide will explain the key differences between affiliate marketing and network marketing to help you determine which is the better fit for your entrepreneurial goals and lifestyle.
Defining Affiliate Marketing
Affiliate marketing is a performance-based marketing model where a company pays affiliates commissions for driving sales and leads. The affiliate earns by promoting or referring products and services, usually on their website or social platforms.
For example, John has a fitness blog. He becomes an affiliate for a line of workout supplements, places an ad for the supplements on his site, and earns a commission whenever a reader clicks the ad and makes a purchase.
Affiliates typically earn a flat commission per sale or a percentage commission on the total purchase amount. Rates vary widely depending on the merchant, product, and affiliate program but tend to range from 1-30%.
According to recent industry data, affiliate marketing is growing at a 4% CAGR, on pace to become a $8.2 billion industry by 2022. [1] Top performing affiliates easily earn over $100K/year, with 22% making $500K or higher. [2]
The potential for high rewards with relatively low risk has fueled rapid affiliate marketing adoption, with 81% of brands now running affiliate programs. [3] AI and automation tools continue to transform affiliate marketing as well, personalizing recommendations and predicting optimal partnerships.
Defining Network Marketing
Network marketing, also called multi-level marketing (MLM), is a business model where distributors earn commissions from both direct product sales and by recruiting new distributors beneath them. This creates multiple levels of distributors and commissions.
Distributors buy products wholesale from the parent MLM company. The distributor then sells those products to retail customers at a markup. The distributor also recruits new distributors into their “downline” team. When downline distributors make sales, the upline distributor earns override commissions.
For example, Mary joins an essential oil MLM company. She buys oils wholesale and sells them to friends and family for a profit. She also recruits Susan and earns commissions from Susan’s oil sales. Susan then recruits others, and the cycle continues, rewarding those at the top.
However, the model faces criticism. An FTC report shows 73% of distributors earn less than $5000/year from MLMs. [4] Top earners make up just 0.04% of recruits, indicating very low odds of high earnings. [5]
While AI tools are revolutionizing many industries, relationship-based sales limit technological disruption of network marketing. Human connections remain the lifeblood of successfully building large downline teams.
Key Differences Between the Models
While affiliate marketing and network marketing have some similarities, they differ significantly across these core areas:
Company Relationship
-
Affiliate Marketing: Affiliates act independently, partnering with multiple merchants. There is no formal business relationship beyond the affiliate agreement.
-
Network Marketing: Distributors formally join one parent company under contractual agreements to represent their products/opportunities.
Work and Time Required
-
Affiliate Marketing: Effort goes into content creation and promotion to drive conversions. Most affiliate programs are free to join. Time commitments vary widely based on content formats and marketing strategies used.
-
Network Marketing: Effort goes into selling, recruiting, providing support, and managing your downline. You must purchase products to qualify as a distributor (often $100+). Typically requires 25+ hours a week to build momentum.
Earning Potential
-
Affiliate Marketing: Income relies solely on your ability to drive conversions through referrals. High performing affiliates can make over $100K/year. Top 10% of affiliates make $50K+/year on average. [2]
-
Network Marketing: Income relies on your personal sales AND building large, productive downline teams. Around 73% of MLM distributors make less than $5000/year. [4] Top earners make up just 0.04% of company distributors on average. [5]
The below earning distribution charts illustrate the contrast:
Affiliate Earnings Distribution
| Earnings Range | % of Affiliates |
|---|---|
| Under $500/month | 14% |
| $500 – $2K/month | 46% |
| $2K – $5K/month | 26% |
| Over $5K/month | 14% |
MLM Earnings Distribution
| Earnings Range | % of MLM Distributors |
|---|---|
| $0 | ~50% |
| $1 – $500/year | ~25% |
| $500 – $5000/year | ~23% |
| $5000+/year | ~2% |
So while big earnings are possible for some, the data indicates affiliate marketing provides more reliable income growth tied directly to your personal efforts.
Commission Structure
-
Affiliate Marketing: Earn set commissions on each conversion, often 10-30% per sale or lead. Payouts come directly from advertiser to affiliate.
-
Network Marketing: Earn smaller margins on direct sales (around 10%). Residual commissions earned from downline sales based on compensation plan rules. Money flows through upline chains before payout.
Investment Needed
-
Affiliate Marketing: Typically no minimum investments are needed beyond a website and marketing tools. Can start for less than $100 in most cases.
-
Network Marketing: Must purchase product packages (often $100+ to enroll). Ongoing monthly purchase minimums are often required to qualify for commissions and maintain rank.
Compliance Factors
-
Affiliate Marketing: Lower compliance risks thanks to upfront commission models approved by the FTC. Income claims tend to be less misleading.
-
Network Marketing: Higher compliance risks due to complex multi-tier commission structures that vary by company. MLMs frequently come under fire and face lawsuits over illegal practices. An analysis found that 30% of MLMs faced litigation over questionable pay practices and false income claims. [6]
Scalability and Growth Models
-
Affiliate Marketing: Income scales directly in proportion to your conversions. More clicks = more commissions. No ceiling or position limits on earnings. AI tools continue to optimize conversions and affiliations.
-
Network Marketing: Position determines potential earnings, not just conversion rates. To grow, you must continually expand your team. Once upper ranks fill, new members hit barriers. Human relationship limits make scaling infinitely harder than digital ads and assets.
Technology Infrastructure Differences
Affiliate and network marketing run on very different backend technology to manage their distribution models and compensation plans.
Affiliate Marketing Tech Stack
- Affiliate Network Software
- Attribution tracking
- Affiliate CRM
- Affiliate link cloaking
- Affiliate marketing analytics
Network Marketing Tech Stack
- Party plan software
- MLM CRM
- MLM accounting systems
- MLM analytics and dashboards
- MLM apps and tools
Network marketing platforms in particular must track infinitely more complex customer relationship trees, compensation payout instances, and qualification rules engine. So while they help automate operations, they solve intrinsically harder data orchestration problems.
Additional Team Structure Comparison Factors
Both affiliate and network marketing rely heavily on teams and partnerships for growth. But how those teams function differs notably across each model.
In affiliate structures, informal partnerships might form for collaborative marketing campaigns, co-promotions across combined assets, and knowledge sharing. Affiliates function independently regardless, though aligning with other successful marketers can compound outcomes.
In an MLM, you actively work to build a hierarchical team of distributors organized in “legs” by who recruited who. Leading multiple legs to achieve higher rank requires strategic team building and complex commission management.
Organization and Management
Beyond recruitment, network marketing leaders put significant effort into training members, keeping them motivated, planning events and incentivizing growth. Their rank and team production directly impacts overall earnings. Affiliates do not take on management responsibilities for other affiliates.
Pay Structure
Within a network marketing team, uplines earn commissions down multiple “legs” based on rank and company rules. Higher ranking distributors take overrides on full team volumes. This creates mismatched incentives and pay disparities that harm lower level distributors.
In affiliate structures, each person controls their own marketing domains and assets. Income derives predictably from self-generated conversions, not overrides on others.
Compliance Considerations
Complex multi-layer pay structures make network marketing far more susceptible to illegal practices that harm lower earning distributors.
A recent FTC settlement fined an MLM company $200 million for operating an illegal pyramid scheme that focused overwhelmingly on recruitment over product sales. A tiny percentage earned big while over 99% lost money after required purchases. [7]
While regulations aim to prevent such issues, the very structure of network marketing remains controversial. Ethics questions around possible exploitation of lower ranked network members persist in the industry.
Some best practices for reputable network marketing companies include:
- Disclosing average incomes and earning potential to recruits
- Capping monthly purchase requirements
- Basing commissions predominantly on product sales volume rather than recruitment
However, even with rules against pyramid scheme practices, the multi-tier network structure continues enabling significant disparities in profit distribution.
Which Model is Right For You?
With vastly different business models, affiliate marketing and network marketing suit different personalities and professional goals.
Affiliate marketing tends to fit those who prefer:
- Being independent rather than managing a team
- A flexible work schedule
- Generating income directly from your efforts rather than overrides
- Higher control and lower compliance risks
Network marketing tends to fit those who:
- Enjoy sales and mentoring team members
- Can commit 25+ hours a week
- Have very large networks to leverage
- Accept higher risk compensation models
Neither model is universally better or worse. But assessing your own preferences, abilities, time commitments and risk tolerance can steer you towards the model with a higher chance of long-term success.
Sources
[1] Forrester[2] Rakuten Advertising
[3] IAB
[4] FTC analysis
[5] Consumer Awareness Institute
[6] Statista
[7] FTC settlement
