MLM Business

“Is this a pyramid scheme?”

 

Nearly every person who is prospected for an MLM (multilevel marketing) opportunity for the first time asks that same question. It's a common misunderstanding among new prospects. But in their defense, at first glance, MLM businesses often appear as pyramid-like structures, especially when the person presenting describes the compensation plan without offering much of an in-depth explanation.

 

Sure, there might be a giant triangle with the person at the top earning a lot of money. But in reality, that triangle is just one small part of a much larger picture with everyone earning different amounts of income – all dependent on their unique level of effort.

 

So, what's the difference between MLM and pyramid schemes? Let's take a look at both.

 

The first thing to know about pyramid schemes is that they are illegal. Pyramid schemes offer an opportunity to make money simply by getting other people to join the same opportunity. The main difference between this and MLM is that there are no products to sell in a pyramid scheme. You are rewarded only when someone else joins you in the pyramid.

 

However, sometimes the scheme may involve the automatic repurchase of inventory and may force each new prospect to buy quantities that they could never possibly resell. In this case, the people at the top, who started the original pyramid, reap the largest rewards. In fact, they reap nearly all the rewards, while the people beneath them in the pyramid only rack up more inventory and debt from the money they were forced to spend.

 

In essence, this type of “opportunity” just becomes an elaborate exchange of money, with the people at the top earning most of it.

 

MLM differs in that it involves the sale of real products. While at first it may seem as if an MLM company will reward you directly for recruiting more people, in reality you're not getting an actual check just for getting those people to join. Instead, the recruiting is an added incentive with the reward being a cut of the sales that those people generate.

 

In MLM, you are earning commissions on the product sales you generate, as well as commissions on the sales that your recruits generate. While this commission structure may continue down for several “levels,” everyone has the same opportunity to earn as much income as they choose. In this regard, MLM presents an innovative business model, differing from traditional business models in that MLM companies rely primarily on “word of mouth” to market their products, as opposed to traditional advertising.

 

Inexperienced MLMers are quick to draw massive pyramids to show “all the money” you can make. Unfortunately, this is what causes a lot of the initial confusion among prospects who are wary of a unique marketing structure they've never heard of. These prospects then dismiss the opportunity as a pyramid scheme before ever learning the full details.

 

If you're approached about an “opportunity,” or find a questionable website, here are some things to ask. Is it being promoted by a reputable company? Is there a real product being sold? Will you receive money simply for finding new sign-ups, or for sales made by those new sign-ups?

 

If you're being presented with an MLM opportunity, congratulations; you actually have a real chance to earn serious income, assuming you put the effort in. But if it's a pyramid scheme, beware; the only money you're going to see is what's leaving your wallet each month.