Multi-level Marketing Or Pyramid Schemes? How To Spot The Difference.
We can all agree that times are tough. More people are looking to Multi-level marketing (MLM) companies to make some income at home or as a side hustle. With so many scammers out there just what do you need to look out for?
Multi-level marketing is a regulated business model that involves the distribution of products by establishing a network of distributors. This offers distributors the platform to be part of a direct selling business without the initial start-up costs.
Most offer some training and cheaper access to the products for resale. The distributor sells the products at a markup and also introduces the product to other distributors to earn a percentage of their sales. The idea behind the MLM concept is to allow direct selling companies to have a wider market reach.
Pyramid schemes riding on the MLM business plan offer money for recruiting and achieving certain levels of success in the company.
While it can be difficult to tell the difference there are some key questions to ask yourself before joining.
Do they have any product /service to sell?
This is usually the easiest way to tell. Look at the product they are selling, do they have any actual products to distribute? What is their main service? MLM business models should be entirely to move products, their marketing emphasis should be on the products.
Pyramid schemes are typically based on a recruitment only model and you can’t really tell what business they are into.
If there is no real product or service, then it’s probably a pyramid scheme.
Can you make money out of selling the products without recruiting anyone?
If your answer is yes, then the business model is most likely MLM. With an MLM, you should be able to just sell the products with no need to recruit, the products should be distributable at markup profitably.
Recruitment rewards should only come as a bonus or additional income avenue. If your only income is based on recruitment it could be a pyramid scheme.
Does the company seem interested in market research, new product development, or product promotion?
MLM’s are usually product oriented. If there is no mention of product quality or performance and no research into product development it could be a signal pointing to a pyramid scheme.
Does the marketing plan offer outrageous amounts of money for little or no effort on your part?
Pyramid schemes usually entice by offering enormous amounts of money for little invested effort. If it seems too good to be true, it probably is.
Do they focus more on recruitment?
If the compensation plan is recruitment based, offering more money for recruiting with no need at all for sales, I would vote pyramid. In MLM, you should normally get rewards for new recruits only as a percentage of their sales not being paid to recruit.
Incentives for recruiting should be based on your recruits having a certain level of product sales themselves, not on how many they are.
A usual red flag is when you get your money back when the recruits pay to join.
What to watch out for
MLM can be a good home business, if you find the right company and if you are a good fit. Before making the decision to join any company remember to
- Carefully evaluate your decision. Never sign up at a motivational pitch event. Just like any other decision in life, emotional decisions tend to come back to bite you. Rather sleep on it, carefully evaluate the product and the company.
- Read through the company’s marketing plan, and any other documents you can find. Scour the internet, go through the company’s website. Find out how long it has been operating.
Have there been any lawsuits in the past? Does the product testimonial maintain consistency over the years? Do your due diligence first before you commit.
- Be wary of outrageous claims to wealth and earnings potential.
With pyramid schemes, you will make money only if you find yourself on the uppermost levels of the pyramid. Those who enter at the bottom rungs will lose their money as these schemes are usually short-lived and last only until the bubble bursts.
Be careful where you put your money, your future depends on it!
