Multi Level Marketing vs. Pyramid Schemes

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Multi Level Marketing (MLM) and Pyramid Schemes, what is the difference? What makes one a scam and the other a legitimate money making opportunity? Are they both scams? Are they both legitimate?

The major difference between a Multi Level Marketing (MLM) program and a Pyramid Scheme is how the "opportunity" is laid out. The ultimate goal of a Pyramid Scheme is to have you pay a fee and then have you recruit other people to pay that same fee. With MLM you are trying to sell product. The basic principle of Multi Level Marketing is that the more people you have selling the product the more product will be sold.

How to Tell if it is Multi Level Marketing or a Pyramid Scheme:

1) If they are asking for a large money investment they are probably a Pyramid Scheme and not a legitimate way to make money. Legitimate Multi Level Marketing businesses will not want a large financial investment because they want to recruit as many people as possible to sell the product, which is their ultimate goal. Unlike Pyramid Schemes where their ultimate goal is to get the sign up fee from you.

2) With most legitimate Multi Level Marketing programs you do have to buy some inventory upfront. This is understandable on the assumption you have to have some of the product to be able to sell it. The company is not going to send out product for free under the hopes you are going to be serious about the opportunity and sell. If you are not serious (which is 90% of people who sign up for MLM programs) they would be throwing money out the window.

If you do have to purchase inventory make sure that there is a buy back program of un purchased product. A legitimate Multi Level Marketing company will buy back unused product at a certain percentage of what you paid.

3) Does the company that you are going to be working for have sales support and marketing efforts. If a company is really serious about there product being sold those efforts should exist. If the company doesn't seem to have any type of marketing or sales process they probably aren't to concerned about the product selling and you should not sign up .

4) Is there more emphasis on recruitment than on selling the product or service? Remember, the difference between MLM 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. These next two questions will help you determine what the focus of the company is:

5) Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself?

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.

Get (and read) written copies of the company's sales literature, business plan and/or marketing plan. Talk to other people who have experience with the MLM company and the products, to determine whether the products are actually being sold and if they are of high quality. Check with the Better Business Bureau to see if there have been any complaints about the company. And listen carefully when you're at that MLM recruitment meeting. Inflated claims for the amazing amounts of money you're going to make should set your alarm bells ringing.

Being part of a successful MLM company can be both profitable and fun, but unfortunately, some purported MLM opportunities are actually pyramid schemes designed to flatten both your wallet and your dream of running a business.