Pyramid Scheme vs Legitimate MLM

Whenever you mention to people that you're in network marketing (or "MLM" (Multi-level Marketing)), they will straight away relate it to illegal pyramid scheme,  and start to put on a defensive mode when talking to you. Is that a norm, you may ask?

Well, at least that was how I was behaved and reacted earlier when someone introduced it to me when I first got started :)

Usually people relate MLM to a pyramid scheme which is ponzi in general. Let me try to explain.

If you who are "RICH DAD, POOR DAD"'s author Robert Kiyosaki and famous America's business investor and US President, Donald Trump and etc, instead of having bad impression on network marketing, they advocate that!

They know this is the place that has the great potential to make plenty of legitimate money and growth.

RobertKiyosakiDonaldTrumpNetworkMarketing_500
   
So I decided to probe further and I found out there are differences. 

Firstly, an organisation with a pyramid structure does not make it illegal. Your work place already in a pyramid structure and multi-level correct? (Ranging from CEO -> Vice Presidents -> Managers -> Supervisors -> Employees!) So does it make it illegal? Obviously no right? Because other than collecting shit daily from the top, you also get your salary for the amount of work you put in, whether it's hourly, weekly or monthly.


Network Marketing or MLM has the same pyramid structure too, but not necessary they are illegal too. The difference is, do you get a solid product or value that what you've paid for?

Triangle - MLM vs Pyramid_350 


Actually, there is a fine line between legitimate MLM businesses and an illegal pyramid schemes!
If you know what to look for and what to avoid, you will be able to detect a true “pyramid scheme” from a potential money making opportunity.

In a legal MLM company:

1) It has a legitimate product (be it physical in the brick and mortar form, or digital type in the digital world now). Although it sells and goes right up to the top distributor but it gives value back all the way down to the customer. In other word, you get what you pay for and the product is still in the reasonable price range.

2) The bottom level is allowed to make more money than the top level. You can still simply make money from the commission from the product without recruiting people. For example, you are promoting a company product and each time a customer buy the product, you will then earn a small commission from it.

However, not everyone likes to be a salesman, which is why the company's compensation plan comes out to help people to gain profit from other people's sale.

3) Everything that you buy is transparent.

4) A good company usually has a solid training system because they want you to grow together as a team.


However in a illegal pyramid scheme:

1) There are no real product. They are just simply people recruiting instead of product selling. A ponzi scheme, so to speak. (If there is a product used as a disguise, the price is usually inflated!)

2) The people on top of the hierarchy will earn more profit whereas those at the bottom will earn little or nothing. The profits flow upward. If the bottom people choose to do nothing, then there is no value gain except recruit, recruit, recruit.

3) Before you join, they disclose very little about the company and history background etc. They will also ask you for a fee before you 'start earning'.

4) Company normally with no training system. They simply want you to recruit and never plan for long haul.

So in a nutshell, a good legitimate MLM will offer you what you are able to earn when you promote (Usually with high commission rate) whereas an illegal pyramid scheme will ask for fee upfront before you start earning.

At a glance,

Legal MLM
Illegal Pyramid Scheme
What is it?
Marketing Strategy
Fraudulent scheme
Setup
Commission is paid to the distributors at multiple levels when product is sold.
No real product is sold.
Promised compensation
Although enrollees are asked to pay money upfront in order to enroll, however, participants in a MLM scheme make money from enrollment fees AND by selling products.
Enrollees are asked to pay money upfront in order to enroll. Participants in a pyramid scheme make money primarily from enrollment fees rather than by selling products.
Legitimacy
Legal
Illegal
Product
MLM is usually used as a channel for selling tangible products
There is no product except a fake investment
Training
Usually a good solid training platform
No training platform

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