Is Multi-Level-Marketing a pyramid scheme?
There is quite some confusion in the marketing space about whether Multi-Level-Marketing (MLM) is actually a Pyramid Scheme, or not.
There is a fine line of legality between MLM and Pyramid Schemes.
However, you need to know that, at the present time MLM is legal. Pyramid Schemes are not.
Multi-Level-Marketing (MLM) is definitely not a Pyramid Scheme. While MLM does need to recruit people to continue to be sustainable, it typically sells products to those people. Commissions are based upon both product sales and recruitment. Conversely, Pyramid Schemes have no products and rely upon recruitment of team members only, ultimately becoming unsustainable. Pyramid Schemes are illegal.
The Differences Between MLM and Pyramids
The first thing you need to understand is the difference between the two. MLM programs generally have product(s) to sell. Pyramid Schemes are based solely upon the numbers of people you enroll below you.
In a MLM program, your commissions are based on the products you sell, the people you enroll and the products they sell. Also, the people they enroll and the products they sell.
Unfortunately, in most MLM programs, you will have to purchase products every month to keep your position in the hierarchy.
This is essential to earn commissions. Depending upon your recruitment capability, you may end up with Mega Losses Made.
In a Pyramid Scheme, there is no product. The commissions are based purely on the number of people you enroll into the Scheme. Thus, the people at the top of the pyramid are the ones who make the most money. This is because they get a percentage commission from every enrollee below them.
In general, then, in a Pyramid Scheme, the large investment made by a new enrollee pays commissions to those above. When they run out of new enrollees, they collapse!
So you can see, that Pyramid Schemes are illegal in most countries. MLM programs are not. This is because they actually have products to sell in addition to enrolling people to the program.
As we mentioned above, there is a very fine line between the two but, so far, MLM programs are quite legal.
Many people believe that MLMs are just heavily-disguised Pyramid Schemes!
I’ve also heard about Network Marketing – what is this?
Network Marketing, for want of another name, is also Multi-Level-Marketing. I guess this term is used to describe the process because it sounds slightly more attractive.
The term “Network marketing” is used, because like MLM, it utilizes a person’s network to build the business.
Network marketing aficionados encourage you to contact your network of family, friends and acquaintances and promote the business to them.
They encourage you to “invite investment” by influencing others to join the program. This is the aspect of MLM that most closely resembles Pyramid Schemes.
What about Affiliate Marketing – is it the same?
No doubt you will be pleased to learn that Affiliate Marketing is entirely different to MLM, Network and Pyramid schemes.
Affiliate marketing does not require you to enroll your family, friends and acquaintances for you to be successful.
It is totally legal everywhere. Affiliate Marketing enables a person to get paid commissions. This occurs when a customer buys a product supplied by a legitimate company.
Affiliate Marketers can be known as Affiliates, Associates, Publishers., Promoters, etc., by the companies with which they are affiliated.
So, the Publisher joins an Affiliate Program. Then, acquires a personally identifiable link for a product which he/she wishes to promote. Publishers have websites that are independent of the companies they are promoting.
They write blog posts that incorporate their links to the various products or services.
When a customer clicks on this link and makes a purchase, the Publisher gets paid a commission by the supplier.
So, as you can see, this is a highly legitimate way of making money online.
There are some very successful affiliate marketers. It depends, of course, on the products that the Publisher chooses to promote.
Many large companies have their own Affiliate Programs, such as Amazon, and Walmart.
There are also Affiliate Networks.
These networks run affiliate programs for a myriad of smaller companies. They handle everything about the relationship with the Publisher on behalf of their clients.
Is There Training For Affiliate Marketing?
Yes, indeed. There are numerous organizations online that offer this type of training.
There are many courses for beginners, for those with some experience and for those who might be called advanced affiliate marketers.
A search for Affiliate Marketing Training will provide so many results that you may find it difficult to decide.
Therefore, we’d like to tell you about the Affiliate Marketing Training presented by Wealthy Affiliate.
We believe it to be outstandingly good and incredibly useful for beginners as well as those with experience.
The Wealthy Affiliate Training provides step-by-step instruction on a range of subjects.
These include building websites, niche selection, writing content, signing up for affiliate programs, social media marketing, gaining traffic and even more.
There are live interactive webinars on specialized topics. In addition, a large series of recorded trainings are available. These deal with different aspects of affiliate marketing.
But wait, there’s more! There is also a huge community of Wealthy Affiliate entrepreneurs (1.4 million strong), willing to answer questions and assist newcomers with problems.
I think you will agree with me that this sort of training is second to none!
An additional advantage is that you can begin your Wealthy Affiliate journey as a Starter Member, completely FREE.
This free membership gives you the opportunity to try it out and decide if you want to take some more advanced training for a price. There is no obligation to do so. You can remain as a free member for as long as you like.
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So, Is Multi-Level-Marketing A Pyramid Scheme?
The answer to “is multi-level-marketing a pyramid scheme” is actually, NO – it is not.
Although, if this is what you want to do, you will definitely need some investment money to begin. You will maintain your position by purchasing products on a monthly basis.
Of course, you are required to enroll others into the program.
That is likely to entail approaching members of your family, your friends and acquaintances.
Then you will need to spread the net even wider to build your business for worthwhile commissions.
Affiliate Marketing is, therefore, a much better option. Especially if you don’t have much cash to invest initially.
At Wealthy Affiliate, we can get you started on the road to success.
You will not “get-rich-quick”.
But by working consistently to build your business the right way, you will reap the benefits in the longer term. And surely, that is what you really want!
6 thoughts on “Is Multi-Level-Marketing A Pyramid Scheme?”
I think that you have made it clear MLM and and a Pyramid scheme are by no means the same. The thing that tend to make people question this is many MLM companies put so much emphasis on networking and the benefits that lies within that many persons begin to realize that the real money in these companies is in recruiting others to join.
In fact the initial outlay of cash required by these companies and the overpriced items on sale guarantee that new recruits will immediately need to resort to recruiting others in order to make their required monthly payments and stay afloat.
MLM companies even go so far at times to require a certain number of recruits as well as sales in order to remain an active member of their organization. These are the companies that cause many to question whether MLM are truly any different to Pyramid schemes.
While I would always urge others to thread carefully when it comes to MLM companies not all of them are as bad as this.
Well said. MLM is right on the border of Pyramid Schemes but currently it is still legal. Of course, one doesn’t know how long that will last. A person needs a significant investment to join a MLM and maintain their positioning in the hierarchy by purchasing monthly products. Whenever someone is enquiring about internet marketing, I always advise that they check out Affiliate Marketing first. Best wishes, Jenni.
I worked for a MLM company and know how difficult it is to make money with the business model. You have continuously be recruiting new team members, and place monthly minimum orders, to earn override commissions.
Personally I think MLM is a pyramid scheme in disguise. There is a very fine technical line between them, with MLM being legit on the basis that product has to be purchased.
Liné, Thank you for your comment on my article about MLM and pyramid schemes. I totally agree with you that MLM is a heavily disguised pyramid scheme. I always recommend Affiliate Marketing to anyone who is interested in working online. It is much more cost effective. Thanks again. Jenni.
Even though MLMs are not pyramid schemes by abiding by the requirement of direct selling and not product overloading people upfront like many companies have done over the years, it is not a business model that I prefer even though with commitment and drive there is much opportunity there. I much prefer product creation, content marketing, and affiliate marketing. You have presented many valuable insights in this article. All the Best.
Hi Joseph, Thank you for your comment on my article about MLM and Pyramid Schemes. Certainly, unless you like the network marketing aspect of MLM, you should stay away from it. Having been involved in several such programs I now try to avoid them with vehemence.