Affiliate Marketing Vs. MLMs: Which One Scales Your Business?

You could explore a few paths when it comes to new revenue streams for your Shopify business. Affiliate marketing and multilevel marketing (MLM) are both considered passive but require an upfront investment of time, money, and effort. Only once you’ve built a solid foundation in either will the revenue compound more easily over time. 

Let’s explore the pros and cons of each method to determine which marketing method comes out a winner. 

What is multilevel marketing (MLM)?

MLMs, also known as network marketing, blend direct product revenue with a recruitment-based business model. Think of it as growing your mini-franchise within a larger brand organization. 

Instead of operating like regular e-commerce or retail, MLMs operate through a network of independent distributors who sell products and recruit new sellers. This creates a chain reaction of hierarchical sellers and multiple levels of earning potential.

How to grow revenue

Let’s say we start with a seller named Ana. Ana’s personal sales commission she gets from selling your product is 20-30%. 

Then, she recruits John to sell your products. John is a level 1 recruit, and Ana gets a 5% commission from his sales. Then, John recruits Susan, making Susan Ana’s level 2 recruit. Ana gets a 2% commission on Susan’s sales. And so on and so forth down the chain of recruits. 

This structure incentivizes the sellers to not only sell more of your product but also recruit more people to do the same. Ultimately, it’s more revenue for your company and earnings for those who partner with you.

What is affiliate marketing?

Affiliate marketing is a performance-based marketing model where influencers partner with brands and earn commissions by promoting their products or services. It’s an easy passive revenue generator for both parties, as the influencer makes content regardless, and it’s pretty hands-off for the brand. 

Affiliate marketing strategies earn businesses not only more revenue but more brand loyalty. This partnership between affiliate and brand could broaden the businesses’ ICP, and the audience feedback could help them shape improved iterations of the product in the long term.

How to grow revenue

Let’s use Ana from our earlier example. Ana is an influencer who promotes my mechanical keyboard shop and recently sold two products totaling $1,000. The business pays Ana and other influencers a 10% commission when a purchase is made through their affiliate link. 

So, Ana makes $100 from this sale. This model is easy, transparent, and directly tied to the generated brand revenue. In some cases, brands set up fluctuating commission rates, meaning the more money they bring in, the bigger the influencer’s cut. This is an excellent motivator for the affiliate to work hard, earn a lot, and keep both parties happy.

MLMs: The pros and cons

The bright side

There are three main pros for using an MLM structure for your business. 

• Your top sellers do the training: With many MLM-type strategies, brands and businesses supply resource support to their first or top sellers. From there, it’s up to those sellers to train their new recruits, meaning the partnership work is more hands-off once you get going. 
• Networking opportunities: MLMs offer a more structured way to grow a sales team. As their networks grow, so does your earning potential and brand awareness.
• Residual income potential: If your downline is well-built, you can generate consistent earnings through your sellers’ work, eventually creating a web of new revenue streams through recruiting layers. 

Things to consider

The downsides of using an MLM structure are also threefold. 

• Market saturation risk: As more sellers gain traction in one area, the market for recruitment and your business inventory can become saturated, making it easy for recruitment to plateau and revenue to stagnate.
• High initial investment: Launching an MLM strategy requires supplying sellers with a starter kit, monthly minimums, and labor spent on training and resources. This investment of time and money adds up quickly when brands start out.
• Reputation and ethical concerns: MLMs are often associated with pyramid schemes, which have an insidious reputation for predatory selling. Only 25% of MLM sellers profit on average, raising questions about the strategy’s viability for many consumers. 

Affiliate marketing: The pros and cons

The bright side

The positives for affiliate marketing outnumber the MLM strategies but can also be condensed into three main areas. 

• Better brand integrity and consumer trust: Consumers view affiliate marketing as a trustworthy partnership between their favorite influencers and trusted brands. Brand loyalty and trust translate naturally from influencers to their regular viewers. This is a major contrast to the MLM strategy, where consumers are typically hesitant about sellers due to their negative perceptions of the marketing model. 
• Simple structure with a revenue focus: Affiliate marketing simplifies the partnership between brand and seller by tapping into their existing skills. There’s no confusing compensation structure or pressure to recruit. It’s all about doing what they normally do, providing them with training and resources, and watching the new revenue come in. 
• Lower financial risk: Affiliate marketing is well known for being cost-effective. MLMs require businesses to supply starter packs to initial sellers, whereas with affiliate marketing, you only pay influencers when they’ve already generated revenue. 

Things to consider

With affiliate marketing, there aren’t a lot of downsides. The most notable thing to consider is that it might take some time to do some outreach and confirm the influencers you’d like to work with. 

Once you’ve determined your ICP, finding the right influencers for your brand is as simple as looking on social media, joining affiliate groups, or crafting an email campaign for your current user base. 

The other thing to consider is which software you’ll use to host your affiliate program. When shopping around, choose a platform that breaks down the important KPIs in a simple dashboard. To make it even easier, you can find software that automates affiliate payments and makes managing and performance tracking a breeze. 

The winner? Affiliate marketing

Both marketing strategies could help your business grow, but only one is a safer upfront investment and doesn’t risk your brand reputation. Affiliate marketing is the smarter, more modern approach to brand partnerships. With better consumer trust, lower financial risk, and a more streamlined structure, it’s the best way to establish the right partnerships for more revenue that is truly passive. 

Ready to get started with your affiliate program? Book a demo with Simple Affiliate, and we’ll have you set up in no time.