What is the difference between MLM & Pyramid?

Considering an MLM opportunity?

 It may well be a legitimate MLM business. Or it may be a pyramid scheme.

Many people automatically associate a negative connotation with buzz words like multi-level marketing and downline. These people assume that those words denote a pyramid scheme and that the opportunity attached to those words is a scam. However, this is simply not true. If you know what to look for and what to avoid, you will be able to detect a true pyramid scheme from a potential money making opportunity.

As an MLM participant, you make your money by selling the MLM products to other MLM participants. If they're not already a member of your MLM company, you sign them up. Besides earning money off your own sales, you also earn a percentage of the income generated by the distributors that you've brought into the MLM plan (your downline). Often there are bonuses for selling particular amounts of MLM product or signing up a certain number of new members. (Many affiliate programs operate in this same way) But usually there are no fee's involved in becoming an "affiliate".

Like MLM, pyramid schemes depend on recruiting people to become distributors of a product or service. Like MLM, the pyramid scheme offers the opportunity to make money by signing up more recruits and by accomplishing certain levels of achievement.

The big difference between MLM and pyramid schemes is that MLM is legal and pyramid schemes aren't. But it can be very difficult for the person looking for a business opportunity to tell the difference between a legitimate MLM opportunity and a pyramid scheme at a glance. How do you tell whether it's a legitimate business opportunity or a scam?

1. 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. ( because of this I personally consider cash gifting programs a scam as well)

2. The only people that are able to make money on a pyramid scheme are the people at the top of the pyramid.

3. Because pyramid schemes offer no product or service, no possible way exists for the people at the bottom of the pyramid to make any money. The only way to make money in a pyramid scheme is to sign-up new members for a fee. However,  this becomes impossible when the scheme reaches a certain level. 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.

Multi-level marketing companies follow a similar concept to a pyramid scheme, which is a reason for most of the confusion, except that two significant differences exist.

• One difference is that members at any level of a multi-level marketing model can make income through the companys products and/or services without signing up any new members.
• The second difference is that members of any level in a multi-level can advance past the people who signed them up.
• Finally,multi-level marketing companies are indeed Legal!

By following these guidelines, you should be able to tell the difference between the two types of companies. Some pyramid schemes are very cleverly hidden. If you should encounter a company like this during your entrepreneurial journey, and you discover that you cannot make a conclusive decision as to whether or not the company is a pyramid scheme, it is best to error on the side of caution and avoid the situation!

Source: http://www.wikihow.com/Distinguish-Between-a-Pyramid-Scheme-and-Multi-Level-Marketing (edited version)

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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Cheryl Baumgartner   Medical Billing/Coding/Insurance One big distinguishing feature that I did not see mentioned is that with a legitimate MLM,there should be NO recruiting requirement. Team building/recruiting is an option. The product should be salable to anyone, member or not and should someone choose NOT to recruit and simply sell they still have a viable business. Think Avon, Mary Kay Tupperware etc. There is no requirement for anyone to recruit, they can have a sustainable business through direct sales only. However if they do choose to recruit they have the option of doing so. Nov 21st 2010 13:47

Laura Newton  The Water Filter Lady yes.. its mentioned in the first bullet: One difference is that members at any level of a multi-level marketing model can make income through the companys products and/or services without signing up any new members. But yes. MLM's should not "require" you to recruit to earn a commission on your sales. The emphasis is on the product not recruiting. (although there is nothing wrong with recruiting, but it shouldnt be the primary focus)A combination of the 2 (sales & recruiting) are features of a good Multi-Level program. Nov 21st 2010 13:55

Cheryl Baumgartner   Medical Billing/Coding/Insurance Yes if there is a viable product it can be done as direct sales. after all if the MLM is legit you don't get a check from having someone fill out a recruitment app. the check comes from the sale of the product. I think that is where a lot of the confusion arises also Nov 21st 2010 14:01

Joseph Botelho   Investing One Gram at a Time Well l am no expert on this field accept l do know on thing.....many people have made a lot of money on either the Pyramid or MLM....either way they both have something in command....they make and take money, some make it.......most never used it correctly..........so WHO do you blame....EXACTLY......LEAD A HORSE TO WATER but can you make it drink?????? regards, Joseph Botelho Nov 21st 2010 14:04

Laura Newton  The Water Filter Lady Thats right Joseph. (Speaking for myself and product) I do promote my program as well as the products. I am so proud of my company and want to share it with as many folks as I can. Why? Because I know its the best in the industry. The product and the program have helped many many people in terms of health and wealth! (not to mention the positive environmental impacts that it offers as well) I think MLM programs are great. Convincing folks that they are NOT pyramid schemes can be a challenge. As soon as you mention the word "downline" or "network" they automatically think its a scam. Nov 21st 2010 14:18

Joseph Botelho   Investing One Gram at a Time learn to live your dream Laura, not for everyone and besides you only want the ones who have the same burning desire as you do...the rest come and stay for only a coffee, they off to the next concept...why they will never succeed.. JFB Nov 21st 2010 14:24

Dumitru Gavriliu   I.M. Lately, all pyramid programs are selling products and camouflages primary purpose. Nov 21st 2010 14:49

Laura Newton  The Water Filter Lady Not all highhopes. There are many legitimate mlm home businesses to chose from. Your goal is to chose wisely and then stick with it! @JFB. Yes, that is the problem with many folks. They dont take the time that a real home/internet business takes to succeed. They're always searching for the one program that will make them rich overnight. (I call these people "program jumpers") And as we all know, there is no such thing. ALL businesses, (online or offline) take years of hard work, dedication and perserverance to build and grow. Nov 21st 2010 15:02

Maketta A.  Internet Marketer I think that if you really love the product it is easy for you to promote it because you use it yourself. We promote products everyday that we have no affiliation with. If we like a product we share it with other's. That is basically what you are doing with mlm/networkmarketing. It's just that you get paid when you refer your product. Nov 21st 2010 23:42