Let's get one thing straight from the outset, Multi-level marketing (MLM) is not the bad boy here. It is the scams that pretend to be legit MLM businesses that are the bad boys and unfortunately, people get caught out. So it is important to distinguish between the two forms.
This reminds me of most other businesses; the CEO, the board of directors, the various levels of department management, employees of the departments and shopfloor employees. Oh, look, a pyramid!
One big difference I want to mention is that anyone in the various levels of an MLM business can achieve higher earnings than the person at the top. Unlike in the above business image where the people at the top are the big earners and the employees at the bottom will never achieve similar earnings.
For those of you that can remember when the Betterware man or woman would come to your home carrying a suitcase with lots of products trying to sell them. Or you get an Avon brochure delivered to you (Avon is still going strong). These are partly MLM, sell and recruit, businesses. The sales part is a direct selling business model (Network marketing) and the recruitment model is MLM. The boundaries are somewhat murky when people talk about them and place them in the "Don't touch it, it is a pyramid scam!" file.
A Definition of Multi-Level Marketing
Multi-level Marketing refers to a marketing technique primarily employed by Direct Sales Companies,
Multi-level marketing (MLM) is a legitimate business model that allows individuals to start their businesses and earn income by recruiting and selling products to customers. MLM offers an opportunity for entrepreneurs to generate a residual income by building a team of salespeople and earning a commission on their sales. With MLM, you can earn money without investing a large amount of capital or taking on a large amount of risk. Additionally, MLM provides an opportunity to network with like-minded individuals and build relationships with customers, vendors, and other entrepreneurs. With the right tools and strategies, MLM can be a great way to grow your business and maximize your income potential.
Definition of a Pyramid Scam
A Pyramid Scam, as the name suggests is a scheme having a pyramid-shaped structure, similar to MLM and other businesses beginning with a tip (the main person) on the top, that widens continuously towards the lowest level.
A Pyramid Scam can be in the form of Chain emails or Ponzi schemes amongst others. it is a superficial and temporary business model in which top-level members recruit other members, by promising them an assured commission for signing up others to the program. For this purpose, the recruits are charged a fee called an upfront cost. Unlike MLM there are no real products or services for sale.
The earnings are based on the recruitment fees only. Hence, there must be an unlimited supply of new members to make a continuous income. The pyramid scam is very short-lived, as when numerous people enrol in the programme, the cycle is not possible to last long.
Ponzi Scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the scheme. These schemes rely on a constant flow of new investors to provide returns to earlier investors. They often promise high returns with little or no risk. Investors should be aware that Ponzi schemes are illegal and highly unethical. They can result in significant financial losses for those who invest in them.
Chain Emails
Chain emails, also known as pyramid scams, are fraudulent schemes that involve promising a certain payment or reward for recruiters who sign up new members. These emails often require members to send money to the person at the top of the chain in order to receive the promised reward. Chain emails are illegal and should be avoided. It is important to remember that if an offer seems too good to be true, it probably is. Anyone who receives a chain email should not send any money and should instead report the email to the appropriate authorities.
Let's have a peek at the "Good and the Dodgy".
Amongst the different methods of direct selling, Multi-Level Marketing occupies a prime place simply because it is growing substantially and continually all over the world (Global Direct Selling Market - statistics & facts | Statista). Every day people are joining the networks to become Representatives, agents or distributors, and thousands have become millionaires thanks to the networks.
If you are looking to start a business of your own or looking to earn a second income, MLM offers you a good opportunity. The fact that anyone from any walk of life, any age, with or without qualifications can join an MLM network, makes it the easiest business to get into. Besides, most businesses do not require any big investment from your end and are risk-free.
Many people confuse MLM selling with pyramid selling. It is quite true and likely that the general opinion of many people regarding network marketing can be poor and 'Reps' are confronted with varying levels of words on the subject. Therefore you need to have a clear understanding of the difference between MLM and Pyramid selling, including the legality and ethical aspects of both systems, so that you are in a better position to understand the differences and make a well-informed decision for yourself, and not by the voices of ill-informed people.
MLM selling is not pyramid selling. It is legal and it is a business model that allows people to earn money by selling products or services and recruiting others to do the same.
In MLM selling, the products and services are the main focus, and the income is generated from direct sales as well as commissions from sales made by those recruited. Pyramid selling, on the other hand, is illegal and relies solely on recruitment.
MLM selling can be a great way to make money, as long as the products and services being sold are of good quality and in high demand. It is important to understand the difference between the two and to research any MLM opportunities thoroughly before committing to them.
We as humans have a suspicious and lack of trust mentality towards many professions. Be they; Bankers, Builders, Salespeople, MLM and pretty much most professions that include the passing of money and services amongst each other. (Me included). Anyway, back to the topic.
One of the most significant differences between multilevel marketing and pyramid schemes is that goods and services are exchanged in the case of MLM, whereas no goods and services are exchanged in the latter.
Another is the different levels of earning. Take an average business, the CEO is at the top. Then you have directors, middle management, lower management and finally the shop floor. A person on the shop floor will not earn more than the middle management and middle management will not earn more than the CEO. In a pyramid scam, the people at the top earn whereas the people low down the chain are not seeing what was promised. Which was Zilch anyway.
In Multi-Level Marketing, Reps in lower tiers of a network can actually earn considerably more than reps higher up the network. So, technically it works better than your run-of-the-mill business model.
COMPARISON MULTI LEVEL MARKETING (MLM) V PYRAMID SCHEME
Meaning - Multilevel Marketing is a strategy, wherein there is a distribution network for selling products and services, either by word of mouth or direct sales.
Meaning - A pyramid Scheme is a bogus business model that recruits people with a promise of sharing a certain percentage of upfront cost for every additional member enrolled by them.
Legality - MLM Activity Legal
Legality - Pyramid Activity Illegal
Approach - MLM. Objective
Approach - Pyramid. Aggressive
Focus - MLM. Sales of products and services to customers. Recruit new individuals to sell products and services
Focus - Pyramid. Recruiting new individuals on the promise of "Get-rich-quick". No products or services.
Costs - MLM. Some MLM companies charge upfront for enrollment. I would personally go for a company that defers payment to allow you to try before payment. Avon is one such company. You choose a starter kit suitable for your finances and do not pay for it for thirteen days. By this time you are most probably paying for the kit out of your earnings made.
Cost - Pyramid. High upfront cost and also charges for sales training and materials provided. Which could be anything, a sheet of A4 or a 5-minute phone call, Amounting to as much use as a chocolate Teapot.
Earnings - MLM. Depends on sales and networking activity. MLM company pays you on sales or both.
Earnings - Pyramid. Depends on the number of new recruits. The recruits pay the recruiter, and so on.
Multi-level marketing starts with recruitment, wherein individuals are invited to join as a Representative through the company website or through another person, who is already working as a recruiting Rep in the company, through a jobs fair, or an event organised by the company or recruiter.
People join MLM, to earn commissions either by selling products and services of the company and also optionally recruiting other Representatives for the company. The Recruiters get a commission for sales made by them, as well, they get a certain percentage of combined sales of the other Reps, recruited by them.
Hopefully, this has cleared up the confusion between MLM businesses and Pyramid scams for those of you looking to join an MLM business.
I have been associated with MLM for the last 14 years. Selling and recruiting Representatives.
Adrian Jones UK Home Biz
adrian@ukhomebiz.com
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