When people talk about MLM, they tend to assume that it’s a “Pyramid Scheme”. These people assume the words, “Pyramid Scheme” and that it’s a scam. This is not true.
In this blog post, I will break down the differences between a “Pyramid Scheme” and an MLM.
What is a true pyramid scheme?
A pyramid scheme is a non-sustainable business. It involves the exchange of money, in the form of a sign-up fee. It 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. Pyramid schemes offer no product or service.
There is no possible way for new distributors to generate honest income. The end result is that people can spend several thousand dollars to enroll in one of these scams. Then to end up losing everything.
What are the differences between a pyramid scheme and a Multi-Level Marketing (MLM) program?
These schemes are the promise of sky-high returns in a short period of time and doing nothing. All while encouraging others to do the same.
The players behind a pyramid scheme may go to great lengths to make the program look like a real MLM program. Despite their claims to have real products or services to sell. These criminals use money coming in from new recruits to pay off early-stage investors.
Distributors can earn income through the company’s products and services. They can do this without recruiting 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 can cost a bundle.
Many new companies do not have this much capital in the beginning. MLM companies can compensate their distributors via “word of mouth.” The company can save money on advertising.
They can give their distributors an incentive, in the form of money. Enrolling new distributors to promote and use the company’s product.
A Pyramid Scheme recruits members with a promise of payments for enrolling others. As recruiting multiplies, most members are unable to profit. This is why pyramid schemes are unsustainable and often illegal.
Now it’s your turn!
Have you come across people who do not understand what a real MLM entails?
What did you do to handle their concerns?
Please share your feedback in the comments section below!
Thank you so much for explaining this, Nate! 🙂
You are a true respected leader in this profession. Keep up the great work!
Thank you Soumangue. 🙂
Great post. I get asked that question all the time. Your information has helped me make my answer simpler.
Thanks Andrea, I’m glad it helped. 🙂
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!
Awesome feedback. Thanks Ryan!
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!
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”. 🙂
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
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! 🙂