Both affiliate marketing and network marketing pay people for referring a product or service. What then is difference between affiliate marketing and network marketing?
The difference is best explained in terms of way compensation is structured to pay for performance. Because of many hybrid forms of compensation payments available now on internet, to a newbie scouting for business opportunities, it is easy to get confused over many terms and definitions used. In evaluating compensation plans, it is essential to understand subtle difference between two models. Ultimately, you want to understand…which model yields more income?
What is affiliate marketing? Affiliate marketing is usually done online. In its simplest form, affiliate marketers are compensated on a one time transaction only. Unlike products offered in a MLM business, affiliate products are often ones that a customer would only need to purchase one time. Thus, more affiliate marketer sell, more they make. This is quite akin to direct sales albeit made via internet.
Affiliate marketing has a compensation plan based on performance measures. For instance, if affiliate marketer is successful in form of sales, clicks, registrations, etc, he/she gets rewarded. The desired action as a means of compensation is already pre-agreed upon by affiliate merchant and him/her.
In a short space of time, affiliate marketing model has also evolved to a 2 level (or in some cases, up to 5 levels) compensation plan. In popular 2-tier version, for instance, you (as an affiliate of a particular e-book merchant) will earn commission when you sell a book to person A and if person A signs up to be an affiliate and manages to sell to person A1, you get compensated too, in addition to person A.
Let’s now go on to talk about what network marketing is. In network marketing model, compensation plan works in a similar fashion, except that compensation by sponsoring company can be paid up to several, several or unlimited levels. The number of levels and restrictions in terms of payout is very much dependent on arrangement offered. As arrangements can vary from one company to next, this makes comparisons of various compensation plans available out there difficult. So be sure to read all fine print!
At any level, a network marketer has potential to earn a direct referral fee for directly recommending someone and a leverage fee when one of his/her “downlines” is successful for referring friends to same network. In popular binary plan adopted by many network marketing companies, each person in network has two “legs” or “downlines”. If more people get referred to network, they automatically go below “legs”.