What Are The Differences Between A Pyramid Scheme And A Multi-Level Marketing Opportunity?

When people talk about MLM, multi-level marketing and a downline, they tend to consort a negative association with automatically assuming that it’s a “Pyramid Scheme”. These people that assume the words, “Pyramid Scheme” and that the opportunity attached to those words is a scam. However, this is simply not true. In today’s blog post, I will share with you the main differences between a true “Pyramid Scheme” from a potential money making opportunity in MLM.

 

What is a true Pyramid Scheme?

 

A pyramid scheme is a non-sustainable business that involves the exchange of money, usually in the form of a sign-up fee, and usually has no product or service, often knowing as a Ponzi Scheme.

 

Are Pyramid Schemes illegal?

 

All pyramid schemes are ILLEGAL! The only people that are able to make money on a pyramid scheme are the people at the top of the pyramid. As stated above, because pyramid schemes offer no product or service, no possible way exists for new distributors to generate income. The end result is that people can spend upwards of several thousand dollars to enroll in one of these scams and will end up losing everything.

 

What are the differences between a Pyramid Scheme and a Multi-Level Marketing?

 

How to spot an illegal Pyramid Scheme.

 

The United State Securities and Exchange Commission states, “[t]he hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

 

The masterminds behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these criminals simply use money coming in from new recruits to pay off early stage investors.

 

Distributors at any level of a multi-level marketing model can generate income through the company’s products and/or services without recruiting new distributors, hence direct selling tied into the program.

 

Still unclear on the MLM business model?

 

The main reason for this type of business model is to reduce the cost of advertising. We can all agree that effective advertising in this day and age can cost a bundle. Many new companies do not have this much capital in the beginning. Therefore, one solution is to reward the company’s members for using an effective method of adverting called, “word of mouth.” Instead of the company spending hundreds of thousands or even millions of dollars on advertising, the company gives the distributors an incentive, usually in the form of money, for enrolling new members to sell/use the company’s product and/or service.

 

Unlike a MLM Network marketing company, a Pyramid Scheme (a Ponzi Scheme), it is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.

 

Now it’s your turn!  

 

Have you come across people who do not understand what a legitimate network marketing opportunity is?  What did you do to handle their concerns?  Please provide your feedback in the comments section and I look forward to reading them!

 

To your Success,

Nate Leung

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    Nate Leung

    CEO & Founder @ NateLeung.com at NateLeung.com
    Nate Leung is the CEO and Founder of NateLeung.com, and author of "Virtual Entrepreneur: Live Free With the Business of Your Dreams". He has been an Internet Network Marketing professional since 2001. Nate specializes in blogging, generating highly targeted leads, prospecting, social media and driving traffic. You can find out more from Nate by connecting with him over at Google +. There is no greater passion he has than helping people to succeed in their business. He teaches people how to use the Internet to build a successful Network Marketing business. If you're struggling and or looking for help, contact Nate here.
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    12 Responses to “What Are The Differences Between A Pyramid Scheme And A Multi-Level Marketing Opportunity?”

    1. Irene Franzese

      Wow, You really stated it quite well. I get this all the time. People saying oh you involved in that pyramid scheme. That don’t work. I really have to laugh because they know nothing about it. They only heard it through hear say instead of checking it out for themselves. It is a sin that these people let other people steal their dreams. Nice post, thanks for sharing

      [Reply]

      Nate Leung Reply:

      Yes, most people by default will have that view. It’s not entirely their fault, they were conditioned that way without even realizing it. I agree, if they just checked into themselves, they would better understand the business model. Glad this helped you out! :-)

      [Reply]

    2. Stefani McCune

      So many times have people said, “Oh it’s one of those pyramid schemes!” At first I didn’t know how to answer while trying not to get defensive. this awesome post really educates us on what a pyramid scheme really is. Thanks Nate!

      [Reply]

      Nate Leung Reply:

      Yes, most of the time starting off, we try so hard to defend the business model, convincing others that it’s not a pyramid. Most don’t understand what Network Marketing is, as I like to call it, the “Leadership structure”. :-)

      [Reply]

    3. Ryan Biddulph

      Hi Nate,

      Lazy thinkers label legit opps pyramid schemes so it is critical to release these folks and connect with open-minded folks. Like you said Nate, most illegitimate schemes promise sky high earnings by doing nothing but handing over some dough.

      Research your prospective mentor. Learn what to look for in legit opportunities and move forward with faith once you decide that an opportunity fits your needs.

      Thanks for sharing!

      Ryan

      [Reply]

      Nate Leung Reply:

      Awesome feedback. Thanks Ryan!

      [Reply]

    4. Andrea

      Great post. I get asked that question all the time. Your information has helped me make my answer simpler.

      [Reply]

      Nate Leung Reply:

      Thanks Andrea, I’m glad it helped. :-)

      [Reply]

    5. Soumangue

      You are a true respected leader in this profession. Keep up the great work!

      [Reply]

      Nate Leung Reply:

      Thank you Soumangue. :-)

      [Reply]

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