The QonnectNow brings its readers an informative article of Susan Ward which appeared on TheBalance.com on distinguishing between an MLM company and a pyramid scheme company…
Considering a multilevel marketing opportunity (MLM)? Be careful. It may well be a legitimate multilevel marketing business. Or it may be a pyramid scheme – an illegal scam designed to steal your money.
Multilevel Marketing and Direct Selling is an attractive business proposition to many people. It offers the opportunity to become involved in a system for distributing products to consumers. Unlike the person starting a business from scratcch, the multilevel marketing participant has the support of a direct selling company that supplies the products and sometimes offers training as well.
As a consultant or distributor (different companies call them different things) you make your money by selling the products to other multilevel marketing participants. If they’re not already a member of your MLM company, you sign them up.
Unfortunately, not every multilevel marketing opportunity is a legitimate business opportunity. Many pyramid schemes, frauds designed to part the unwary from their money, are disguised.
The big difference between multilevel marketing and a pyramid scheme is in the way the business operates. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other suckers (ahem – distributors). The entire purpose of MLM is to move product. The theory behind MLM is that the larger the network of distributors, the more product the business will be able to sell.
- Are you required to “invest” a large amount of money up front to become a distributor? This investment request may be disguised as an inventory charge. Legitimate MLM businesses do not require large start up costs
- If you do have to pay for inventory, will the company buy back unsold inventory?Legitimate MLM companies will offer and stick to inventory buy-backs for at least 80% of what you paid.
- Is there any mention of or attention paid to a market for the product or service?Multilevel marketing depends on establishing a market for the company’s products. If the company doesn’t seem to have any interest in consumer demand for its products, don’t sign up.
- Is there more emphasis on recruitment than on selling the product or service? Remember, the difference between multilevel marketing and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, run.
- Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself? This is the signature of a pyramid scheme operation.
- Are you offered commissions for recruiting new members? Another pyramid scheme trademark. It’s the number of people who are willing to sign up that matters in a pyramid scheme, not the products or services being offered.
As always, when you’re investigating a potential business opportunity, you’ll want to gather all the information you can about the MLM company’s products and operations.