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MLM vs. Pyramid Scheme

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By: Scam Risk - Expert Reviewer

The Definition

MLM or Multi-level Marketing is a system or strategy in marketing the business through direct selling of the products and recruiting distributors to sell and recruit. It offers rank level compensation for sales and recruits made. 

However, Pyramid Scheme poses the same strategy as the MLM, except that the products are not real. Members-only make money by recruiting new members in the program. It promises an immense amount of money in just a short period for doing nothing.

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Table of Contents

The Difference

Multi-level Marketing

  • It is a marketing strategy.
  • Members paid thru product sales, commission on recruits, and rank level advancement.
  • There’s payment upon registration, and it’s packed with an equal amount of products for the registration.
  • It is legal and recognized by law. .
  • It focuses on product sales, can be personal or turn into business chosen by the member distributor, and that’s when commissions happen. 

Pyramid Scheme

  • It is a fraudulent scheme.
  • Pay members when you add another member to the group.
  • There’s payment upon registration, but there are no products Presented.
  • It is illegal and not recognized by law.
  • It focuses on the number of members enrolled or recruited in the team, and that’s when the commissions happen. 

This is the main way Multi-level marketing and pyramid schemes operate differently from each other.

You’ll notice they both have this system of recruiting members and training them to have their recruits. Still, if you pay attention, the main goal of MLM is recruiting more members for the sole purpose of promoting the product and expanding the sales of products they offer. On the other hand, the Pyramid scheme may start with you, presenting few to no products to sell and go straight to asking you to invite more people to register and join the team. 

The number of people the pyramid scheme requires is just so impossible to get and achieve. The faster you add more people to your group, the faster the money growth you’ll make. Still, when this happens, the company may have that difficulty compensating you because it’s not just you that they need to pay but all of the other members who’re working hard on recruiting new members. And because these companies are fraud, have no products to sell, and do not have many investors to support and supply the compensation – they tend to stop the business, leaving behind the promised return of your investment. It leaves you hanging and devastated because you’ve taken the risk of investing your life’s fortune, savings, and property for it. 

Research on Legitimacy

Do some research before signing any contract. Know that distinguishing the difference between MLM and Pyramid Scheme might be tricky. 

The FTC or Federal Trade Commission set guidelines to help consumers and those who want to make suitable investments know the difference between legit companies and fraud ones. 

Below are some example of questions you should research if you’re interested in joining a certain MLM: 

  • Does the company require a large sum of money when you register and apply to be a distributor? 
  • Will the company accept the products unsold and offer a fair percentage of the payment for it if not sold by the distributor? 
  • Does the company give a more significant concern about the products’ marketability? 
  • Which part of the system has more weight on it? Product sales or recruitment?  

In this internet-driven generation, you might as well use it to do research and invest time to look for reviews, news, articles, and even complaints about the MLM before signing anything and risking your hard-earned money. 

  • Research on how long the company has been running and have established in business and the reputation it keeps. 
  • Visit the company’s blogs and websites. 
  • Interview former members or distributors. 
  • Know the people who’re behind the business. 
  • Check the administrative and legal status of the company. 
  • Check the legitimacy of the MLM in the Federal Trade Commission or Direct Selling Association website. 
  • Ask for the complete terms and conditions when offered to sign any contract, including the compensation plans, potential expenses, claims about how many you can make, and even the person’s name and contact information who can give answers to your further questions. 
  • Read the company’s business plan, marketing plan, each of the products’ information and claims. 
  • Listen very carefully when you’re in a recruitment meeting, and take notes of the questions and parts you need clarification. 

Keep in Mind

It is better to research it yourself and look at what the company offers and if they are true to their claims. You’ll be responsible for the people you’ll invite to join a specific multi-level marketing company because it’s not only your money that’s invested but also theirs…

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