What Is The Difference? (written June, 2008)
What is the difference between a legitimate MLM and an illegal pyramid scheme?
MLM or Pyramid Scheme? Many people seem to question the ethics of MLM. They claim that the people on the top get all the benefit from the people working below them, while the people below don’t get much if anything at all. Nothing could be further from the truth!
Think about where you work. Isn’t it true that the boss is raking in the big bucks out of the money you are making for the company? And if there are cutbacks, who is the first to go? Definitely not the boss and probably not his bonus.
With an honest MLM, you can easily make more than the boss if you put the effort into it. He gets a little bit from your sales, but you get the lion’s share.
But isn’t this just a big ‘pyramid scheme’? Yes and no. Anyone who works a conventional job is in a pyramid scheme. Every company, army, and government in the world is built on the pyramid concept. However with Multi-Level Marketing, you aren’t held back by the people above you like you are in a conventional job.
With an MLM you can build your business as large and as profitable as you want and dream it to be. Totally legal.
So what is an illegal Pyramid scheme?
These illegal scams involve a large number of people at the bottom of the pyramid, all of them paying money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from cash paid by others who join down the line. Pyramids resemble a legal MLM in structure, but there is an important difference. Pyramid schemes seek to make money from you, while Multi-Level Marketing seeks to make money with you. The Direct Selling Education Foundation suggests that before you sign up with a company, you ask yourself these three questions:
#1) How much am I required to pay to become a distributor? An MLM company will generally charge a small start-up fee. Pyramid schemes make most of their money from signing up new distributors, so their start-up charges are often very high. These start-up fees may be called many things and you may be told they are required or are recommended purchases for training, computer services and product inventory.
#2) Will the company buy back unsold inventory? Honest companies will usually buy back any products that you fail to sell. Bogus companies will stick you with the inventory.
#3) Are the company’s products sold to customers? Pyramid schemes gain nothing by actually selling a product and often don’t sell anything at all. They focus only on gaining new investors. Be wary if you must start by buying a large amount of product. Also take a good look at the product itself. Legitimate Multi-Level Marketing depends on quality products that are well-priced; pyramid schemes do not. Pyramid schemes are much like chain letters; they require mathematical gymnastics that cannot possibly work. Pyramids always collapse in the end and only a very few (usually the con artists themselves) make any money on them at all.
As with any other investment before you commit, make sure you ask questions about the company, its products, start-up fees, buy-back policies and its earnings. Take your time and investigate any information you’re given. Talk to other investors and research the company. Don’t act hastily!
The author of this article is Larry Costello, President of All-American Print & Mail, 2200 Wilson Blvd #102-57, Arlington, VA 22201.