HomeScamsMulti level marketing vs pyramid schemes

I am sure most people know friends or family members who have got themselves into some sort of business opportunity and go around looking for new people to join up under them or try to convince others how unique and good their products or services are. There are some people who place multi-level marketing (MLM) businesses in the same box as pyramid schemes. But, let me tell you now. These two types of business models are not the same. Let me explain the difference between MLM vs Pyramid Scheme.

Multi-level marketing businesses

MLMMulti level marketing is a legitimate business strategy used by some companies to promote goods and services that are value for money. It’s a form of direct sales strategy requiring distributors to sell products to consumers and get rewarded for it. Distributors are encouraged to recruit other distributors under them (called downline) and get rewarded by any product sales generated from their new recruits.

But the important aspect of the multi-level marketing business model is that the company concentrates on developing high quality products that are good value for money, and let the distributors handle the marketing of their products. They provide their distributors with the training and resources to promote their products for them.

There are many MLM companies out there such as Avon, Miessence, Cosway, Tupperware etc. Some companies have their own brick and mortar business that they sell directly to the public. But they also adopt a MLM business model to increase sales.

Every MLM business has their own unique marketing strategy and compensation plan to reward distributors who work hard on the business.

But there are some MLM businesses that can come across as a little scammy in their approach to try and lure people to work with them with promises of wealth, if they stick to their system and cult-like culture.

So, if you are considering joining a MLM business, it’s always a good idea to do some research about the company first before you give them your personal details.

Choosing a MLM business to help you earn some extra income is not a bad idea at all. If done properly, it can be a very lucrative home business. As a distributor of the company, you’re basically in sales. So your goal is to be the best you can at marketing their products.

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Pros and Cons of MLM businesses

Pros:

  • Low startup fee (anyone can join)
  • High quality products at a reasonable price
  • All training, marketing material, and other resources provided
  • A legitimate compensation plan to reward distributors based on product sales and new recruits
  • A good business system in place for you to follow
  • A potentially lucrative business from home
  • Can be fun if you like hosting home parties and pampering your guests
  • Good discounts if you love using the products you are selling
  • Lots of support with running your business from distributors above you (called upline)

 Cons:

  • Companies who focus on selling the dream can give people unrealistic expectations of their earnings
  • Some distributors can conduct negative behaviors such as pretending to be your friend to gain your trust; keep hassling you to buy their products or join up; are not transparent about what they are selling; and not totally honest about how much they are making (fake it until they make it!)
  • A high percentage of dropout rate, especially those who either thought it was a ‘get rich quick scheme’ or their money goals were not achieved in a certain period of time
  • Can potentially lose friends if people feel like you are always trying to push products on them.

Pyramid Schemes

pyramid schemeAre pyramid schemes illegal? The answer is YES! Unlike multi level marketing businesses, pyramid schemes have an emphasis on recruiting members into the scheme without selling any real product or services of value.

In a typical pyramid scheme, a member pays a high fee to join. The only way for the member to recover any money is to convince other people to join up and to part with their money as well.

Pyramid schemes are unsustainable models, which eventually collapses and people end up losing lots of money that they have invested into this ‘so-called’ business.

In contrast, people in a legitimate multi-level marketing business earn money by selling genuine products to consumers, not from the recruiting process.

But some pyramid schemes can be disguised as legitimate MLM businesses by introducing products that are overpriced, of poor quality, difficult to sell or of little value. So just make sure you do your research on the company first.

Conclusion

Multi level marketing businesses are legitimate businesses, while pyramid schemes are not.

If you have found this article helpful, please leave a comment below.


Comments

Multi level marketing vs pyramid schemes — 2 Comments

  1. Thanks for shedding light on both these schemes. MLM and Ponzi schemes have cost kind hearted folks billions of dollars. Creating a website and being rich overnight is not possible. I was sucked in by a Ponzi scheme once and lost a lot of money. Your site will save users that pain. Great article and I will share.

    • It is very easy to get sucked into a Ponzi scheme because the fraudsters are very cunning and know how to manipulate people into thinking that they are legitimate businesses. I have friends who got themselves involved into this type of scheme and lost heaps of money when it finally collapsed. If something doesn’t feel right, then it’s probably a redflag!

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