Pyramid Scheme vs MLM

A lot has been said and heard about difference between MLM and Pyramid schemes.

We shall you give you a fair perspective on MLM vs Pyramid schemes.

Everyone these days are looking for some kind of additional income or passive income. Well, who doesn’t like to get a tad more richer, isn’t it? Now a days, there are a lot of options to earn that extra cash. MLM business is just one of them. If you are someone who has a strong set of networking skills and is proud of your marketing talent, this business is just the right slice of pie for you. All you need to do is to find the right company which has products that you like, find a sponsor, choose the right MLM software and join the network. You will soon start earning a good commission on every sale that you do.

Tempted already, aren’t you?

Now, you must be considering investing all your hard earned money in the MLM business? Well, I would say you are not the only one. Many millennials around the world might be pitting Pyramid Scheme VS MLM and drawing out comparisons on which one is the better choice, as we speak.

Before you get onto the block, make sure that you verify the legitimacy of the scheme or else it is as good as dumping your money down the drain. As profitable and genuine MLM business is, there are some debt traps laid out to lure customers and beginners in MLM into Pyramid schemes and take away all their money.

In this blog, we shall discuss the difference between MLM and pyramid schemes so that you can recognise one when it comes across you.

How MLM Works?

MLM or multi level marketing is a new age marketing strategy where a company places the sales of its products under the responsibility of a group of independent distributors. In MLM business, a company recruits a number of independent distributors to sell their products. They go through an array of induction classes and learn how to pitch the products to the right people and how to bring in sales. Various companies address these recruits by various names. They call them agents, affiliates, distributors, consultants, contractors or salesmen. For each unit of product they sell, these independent distributors will earn a commission. The commission depends on the type of compensation plan followed by the company. Apart from selling products, they are also encouraged to recruit more distributors under them. When new recruits join the downline of these distributors, they earn a portion of commission of the sales that the new recruits earn for their respective sales.

Apart from the commission, the distributors also earn bonuses for achieving a particular amount of sales that is set as a target by the company or for adding a stipulated members under them on their downline. They can earn cars , earn vacations and even cash. Quite a tempting business opportunity to earn cash, isn't it?

If you are genuinely interested in joining an MLM company, there a lot of them operating in almost all the countries around the world.

What are Pyramid Schemes?

They are the dark version of a genuine MLM business, to say the least!

Pyramid Schemes are disguised as MLM business and sold to naive people who are impatient to make some dime. The proprietors make use of the unawareness of the people, especially beginners in MLM business who are impulsive enough to join the bandwagon without thinking twice. Well, to get things straight, let us state the obvious, not every multilevel marketing opportunity is a legitimate business opportunity. There are a lot of pyramid schemes as well, doing rounds on the internet today.

In a pyramid scheme, the company in the helm has no real product to sell. The people who enroll in such schemes have to pay a lump sum amount of money right at the time of registration. This would form the primary source of income for these companies. The cunning companies convince these naive recruits that this is an initial investment and they would get great returns on the investment for each new member they recruit in the network and they can earn more after climbing up the ladder.

Pyramid scheme is illegal in all the countries around the world.

Participating in such a pyramid scheme is a punishable offense under the Criminal Code of Canada, and the person who is found guilty for being part of the scheme can get imprisonment up to five years.

How can you tell the difference between MLM and Pyramid Scheme?

Now, let us address the elephant in the room- MLM vs Pyramid scheme - how to tell the difference.

Well, it is quite impossible to tell the difference between a legitimate MLM opportunity and a pyramid scheme from a single glance. So, how do you tell differentiate between a legitimate business opportunity and a potential scam?

The easiest and the most visible difference would be from the way the company manages its operations. The pyramid scheme will not ask its distributors to sell any kind of products. The company will only be keen on asking you to make the initial investment, which will be a huge amount of money and then asking you to recruit more people under you and get a similar amount of money as their initial investment. On the other hand, a genuine MLM company will ask you to sell their products and earn commissions from the sales that you have managed to generate.

The MLM company will have a definite compensation plan that defines how, when and how much commission you can expect to earn from the network. There are several MLM Calculators that are available online to help you do this math. Pyramid schemes will not have any such compensation plans. They just have a particular fixed number of ball model, like 8 ball model where each person has to recruit a set of 8 people into the network and get them to pay the initial investment so that he can earn this promised income from the company. The scheme ultimately will collapse when no people are willing to join the network and cash inflow ceases to stop.

Before you join the network, you can ask the person recruiting you a set of questions to be on the safer side about various aspects of the company he is working for. These questions can be like what products they sell, for how many years have the company been in the business, how much is the earning possibilities, do they have a convincing office space etc.

Also, you must be wary of the schemes that are promising huge returns in a very short span of time for huge initial investments. Such schemes are most likely to be a fake scheme or if at all it isn't, it will be bound to collapse in a short period when the company can no longer pay the huge returns to its investors.

MLM vs Pyramid Scheme- Ask yourself the following questions before joining the network.

Do the company ask you to shell out a lot of money to become a distributor? Legitimate MLM businesses will not ask you to do this at any circumstances. You will only need to buy a starter kit of products for a nominal price.

Is the company willing to buy back the unsold inventory? Legitimate MLM companies will make an offer to buy the unsold inventory back for at least 80% of what you previously paid for.

Does the company put huge emphasis on recruiting more and more people rather than selling any kind of products? This is probably the most differentiating factor between MLM and pyramid scheme. If recruitment seems to be in the focus of the plan, run with your money and never come back. You are probably going to step into a pyramid scheme.

Conclusion

To be safe from the scams and not wasting money, always be sure to gather all the possible information about a company before investing in it. You can acquire and read the written copies of the company's sales literature, business plan and/or marketing plan. Talk to other distributors of the company about the products that they sell and the remuneration.

Talk to other people who have prior experience with the multilevel marketing company and the products to determine whether the products being sold are genuine and if they are of high quality.

Lastly, use the treasure trove of information on your fingertips - internet to read reviews, feedback's and complaints, if any, of the company you intent to join. Hit a few keys and you are bound to dig up some dirt, if at all there is any, on the company.

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