Categories: BUSINESS & FINANCE

Pyramid Schemes Vs. MLM Defined

The big difference between MLM (multilevel marketing or Network Marketing) and a pyramid scheme is in the business’ operations. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other chumps (err – distributors). The entire purpose of a legitimate MLM is to sell product or services. The theory behind MLM is that the bigger the network of distributors, the more products the business will be able to sell.

Both MLM and pyramids have multilevel payment arrangements, but that is where the similarity stops. Network marketing is a legal, honorable way of conducting business. Pyramids are illegal, deceitful confidence games. In MLM, you are a legitimate seller of a product or service and business opportunity. In a pyramid, you are a crook.

MLM or multi level marketing is where you enter into business selling products and recruiting other people to sell those products. The primary confusion about a MLM business opportunity is the surface similarities with a pyramid scheme.

If you are considering joining what seems to be a legitimate MLM plan, take time to find out about the plan. What’s the company’s track record? What products does it sell? Does it sell products to the public-at-large? Call the FTC and the Better Business Bureau (in the US) to see if there are complaints. What real evidence exists to back up claims it makes about its product? Check out the web– simply input the company name + scam. Check put discussion boards or forums. Is the product or service competitively priced? Is it likely to attract to a big client base? How much is the investment –in both time and money– to be successful? Is there a minimum monthly sales quota to earn a commission? Are you required to recruit others to earn your commission? What is the nature of support and training can you expect?

A MLM business, nonetheless, works much differently. A MLM enterprise also sells products and recruits new members. A person doesn’t have to ante up to be a part of the business and they don’t have to enroll anyone if they don’t want to.

The deception boils down to the fact that it’s just not possible for the cycle to sustain itself. So people will sooner or later lose their money

Those who are most vulnerable are those toward the bottom of the pyramid, where it becomes highly unlikely to enroll the number of people needed to compensate the previous layer of recruiters. It is estimated that 90% to 98% of people who join a pyramid scheme will suffer a loss of their money.

Legitimate multi-level marketing (MLM) involves being recruited to sell a product or service that really has some underlying value. As a recruit, you are able to make a profit from the sales of the product or service, so you do not necessarily have to recruit more salespeople into a down line below you. And although you may be encouraged to bring in other salespeople whose sales would provided you more earnings, you can stick with just selling the product directly to the consumer if you choose.

A pyramid scheme however, will probably provide a product with no independent value. The product could take the form of books, software, seminars or multimedia, for example, or mailing lists. In this kind of pyramid scheme, you’d be asked to enlist new members into the MLM make a profit and keep the scheme alive. Joining for the sake of recruiting others is the only reason anyone would buy the products offered.

Representative in a business opportunity that are just purchasing product to buy into the deal as opposed to an intent of actually marketing it , are really working a pyramid scheme, not genuine direct selling business. Remember, when you offer this opportunity, it’s your reputation that’s going to be on the line for a long time in the future.

At some level, everybody who takes part in MLM in which very little retailing is happening is lying to himself or herself. Many people at the top of these systems are consciously deceiving to everyone else. Fraud is implicit in this type of scheme and is pervasive in its marketing.

Avoid the “Matrix” type MLM – the program that only pays on X number of reps wide and Y number of reps deep. These programs are self-limiting on the total amount of money you will make – anything external of that “matrix” is lost money and wasted effort.

So there you have it. Keep these differences uppermost in mind, and along with common sense and additional due diligence, you can feel more confident when considering a MLM/Network Marketing business opportunity. Do your own investigating, and for heaven’s sake, don’t jump in as the first one. If the company is any good, it’ll be around.