Although Multi-Level Marketing has been around for decades, many people still confuse Multi-Level Marketing (MLM) with pyramid schemes. Although the two models share a similar visual structure, their operating principles and legal status are vastly different. When choosing a business path, it is important to base your research on facts, not emotions and myths.
What is MLM (Multi-Level Marketing)?
MLM is a legitimate direct sales strategy. Companies sell products or services through independent distributors. This model is beneficial for companies because they do not have to invest millions in marketing and advertising, as advertising is done by thousands of consultants around the world. In this model, your MLM profit is generated from:
What is a pyramid scheme?
A pyramid scheme, on the other hand, is an illegal fraud model in which the main emphasis is placed on attracting new members, rather than on selling the products themselves. Most often, the membership fee, which must be paid upon joining, is used to pay “profits” to those who joined first.
Key Differences Between MLM and Pyramid Schemes: Comparison Table
| Feature | MLM (Legal) | Pyramid Scheme |
|---|---|---|
| Source of Profit: | Product Sales | Entry Fees |
| Product: | Real Market Value | Sham or Not in general |
| Main focus: | Customer acquisition | Member recruitment |
| Longevity: | Long-term business | Short-term (collapses) |
| Returns: | Returns are possible | Money does not return |
5 Red Flags to Look Out For
If you are considering joining a network marketing company, check for any of these red flags:
Remember that MLM is a job where your level of success depends on your sales skills and team management. In contrast, pyramid schemes are financially dangerous and illegal. Always do a thorough research on the company’s reputation before investing your time and money.
