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.
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.
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,