MLM vs PyramidArticle pertaining to the fundamental differences between legitimate MLM marketing and illegal pyramids and Ponzi schemes.Multi Level Marketing (MLMs) are a controversial subject and many compare them to illegal pyramid scams. Are the one and the same? We discuss here.What is MLM? It stands for Multi Level Marketing. It is a scheme where people invest or sell a product. It is similar to a pyramid scheme in that people recruit new members who are then in their "downline" and people can make commissions from the sales of people in their downline. Profits are split top heavy so people near the top of the pyramid make more money than people just joining at the bottom. Is MLM the same as an illegal pyramid scheme? MLMs do attract their share of controversy, but there are fundamental differences between MLMs and illegal pyramid schemes. What are those differences? Legitimate MLM programs offer products or services that are in a certain demand and hence they are able to sell them to the public to generate a profit. Pyramid scams focus on recruiting new members, and this takes priority over selling the products. The products in pyramid scams are typically inferior and over hyped and members will have trouble selling them, hence the focus on recruiting. A legitimate MLM can continue regardless if they fail to attract new members, because their profits derive from selling to the public. Pyramid scams need to continue to focus on attracting new members as this is how the scheme generates its profits - through registration fees to join and forcing new members to pay for high volumes of product. This leads to another fundamental difference between MLM and pyramid scams. In legitimate MLM, members are not forced to buy high volumes of products that the do not realistically have a chance of selling. The operators of illegal pyramid scams often make their members purchase large volumnes of product to generate an income as they are aware that many members will struggle to sell it to the public. Should I still avoid MLM, despite is being legal? All depends on you. MLM can sometimes be a good way to earn an income, but because of its inherent pyramid structure, there is always more of a risk involved than with your average job. Also the life expectancy of an MLM is shorter than having a full time paid job - so it depends on your character. If job security is high on your list of priorities, then stay away from MLM. However if taking a risk and overcoming a challenge sounds like its up your street then MLM can be good fun and can often work out, providing you choose a legitimate scheme, not an illegal Ponzi scheme masquerading as one. How can I determine between legitimate MLM and illegal Pyramids? Often it can be very difficult since fake MLMs are growing in believability. If you are new to the game, don't pay signing up fees, rather focus on pure selling MLMs. There can be (rarely) legitimate MLMs that still require you pay to join, but until you are confident you can determine which are fake and which are not, don't pay. Ignore schemes that reward you greatly for signing up new recruits as these are the ones that will fall apart fast. Some legitimate MLM's may commision you for signing people and for their sales, but selling the product will always be priority number 1.There has been a surge recently of fake investment Ponzis, like Tazoodle - avoid schemes that haven't launched yet. They may say they are about to be the "next big thing" but if that were the case they would get private investors and not rely on people like you. This and if they have not launched yet there is no way to determine if it will be able to make money, in which case, once again the profits will only come from signing up fees, rendering the majority of its members with a monetary loss. Okay there are other signs but this covers the basics of the basics. For more information on Pyramids, click here.. |
Comments
UC Kid says: |
It appears from your article that you only know about good MLMs academically, such as is taught at Harvard Business School. MLMs can be both a very good business model, or a poor one. One best way to tell the difference? If a decent sales person can work about 40 hours per week and make a decent living ***just selling the product and not recruiting*** then it`s a good MLM. I joined an MLM where I saw people I joined with work very focused and consistently, who went from zero to big money via joint recruiting and selling. I also met and trained with a very successful person in the same MLM who did NO recruiting and made a very good living just doing sales. Questions to ask: Would the product sell well and pay well if there were no recruiting? Is the sign-up fee reasonable to cover the home office`s time to do paperwork? ($50-$150 is reasonable.) Does the company promise you a bigger pay back if you pay more up front? For example, for buying more "sites" or "office centers".(This is illegal in most states and a sign of a scam that wants to get your money up front because most people quit.)What are the home company`s ethical standards? Are they open and above-board? Do they have a good reputation with the BBB and the Chamber of Commerce? Ask to talk with former members who have dropped out. I dropped out not because it wasn`t an excellent business but because I`m more of a numbers person than a people person. My uncle, an excellent sales person, told me as a youngster that if you have a good product it will sell itself. True, but you still have to like interfacing with people most of the day. I left and returned to doing computers, which suits my analytical style better. However, I still buy this company`s service and recommend them to others. THAT`s a sign of a good MLM company. |
| posted on 12/29/11 |
