Is MLM a Pyramid Scheme

Posted on

Is MLM a Pyramid Scheme

I Love this quote I found online “If a job makes you pay money to work for them, it’s a scam.”

The big difference between MLM and a pyramid scheme is in the way the business operates. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other suckers-(distributors).
The entire purpose of MLM is to move product, some cost to join but others are free.

How MLM Works
As a MLM consultant or contractor or distributor (different companies call them different things) you make your money by selling the products to other multilevel marketing participants. If they’re not already a member of your MLM company, you sign them up.

Besides earning money off your own sales, you also earn a percentage of the income generated by the distributors that you’ve brought into the program (these are known as your downline). Often there are bonuses for selling particular amounts of product or signing up a certain number of new members, in the big ones you can earn cars and trips as well as cash. Sounds good, doesn’t it? And being part of a well-run MLM business can be a lot like being a member of a large extended family.

Pyramid Schemes
Unfortunately, not every multilevel marketing opportunity is a legitimate business opportunity. Many pyramid schemes are frauds designed to part the unwary from their money, are disguised.

Like multilevel marketing, pyramid schemes depend on recruiting people to become distributors of a product or service. Like MLM, the pyramid scheme offers the opportunity to make money by signing up more recruits and by accomplishing certain levels of achievement.

The big difference between multilevel marketing and pyramid schemes is that MLM is legal in Canada, the US and many other countries, while pyramid schemes are not. Participating in a pyramid scheme is an offense under the Criminal Code of Canada, punishable by up to five years imprisonment.

But it can be very difficult for the person looking for a business opportunity to tell the difference between a legitimate MLM opportunity and a pyramid scheme at a glance. How do you tell whether it’s a legitimate business opportunity or a scam?

The big difference between MLM and a pyramid scheme is in the way the business operates. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other suckers-(distributors).
The entire purpose of MLM is to move product, some cost to join but others are free.

Checklist for Recognizing a Pyramid Scheme

  • Are you required to “invest” a large amount of money up front to become a distributor? This investment request may be disguised as an inventory charge. Legitimate MLM businesses do not require large start up costs.
  • If you do have to pay for inventory, will the company buy back unsold inventory? Legitimate MLM companies will offer and stick to inventory buy-backs for at least 80% of what you paid.
  • Is there any mention of or attention paid to a market for the product or service? Multilevel marketing depends on establishing a market for the company’s products. If the company doesn’t seem to have any interest in consumer demand for its products, don’t sign up.
  • Is there more emphasis on recruitment than on selling the product or service? Remember, the difference between multilevel marketing and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, run.

These next two questions will help you determine what the focus of the company is:

  • Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself? This is the signature of a pyramid scheme operation.
  • Are you offered commissions for recruiting new members? Another pyramid scheme trademark. It’s the number of people who are willing to sign up that matters in a pyramid scheme, not the products or services being offered.

Watch a FaceBook Video here presented by Direct Selling Australia