How to Tell the Difference Between MLMs and Pyramid Schemes

Are you considering a multilevel marketing opportunity (MLM)? Proceed with caution. The company your looking at may well be a legitimate multilevel marketing businesses – or it may be a pyramid scheme. One could turn out to be a lucrative venture, while the other is an illegal scam designed to steal your money. The key to achieving success is to make sure you can distinguish between them.

How does an MLM work?

An MLM consultant or distributor (different companies use different terms) makes their money be selling products to other multilevel marketing participants. If they are not already a member of the company, the distributor signs them up. In addition to making money off their sales, the distributor makes money off of the other distributors they’ve brought on board. In many cases, there is a bonus for selling particular amounts of product or signing up a certain number of members. Another big attraction of an MLM is the sense of being part of a large extended family, a community.

What is a pyramid schemes?

Unfortunately, some multilevel marketing companies are actually frauds designed to take people’s money. These schemes are carefully disguised. Just like an MLM, pyramid schemes offer the opportunity to make money by signing others up and reaching certain levels of achievement. However, unlike an MLM, a pyramid scheme is different in the way it operates. Its sole purpose is to get people’s money – and then use them to recruit others. Other signs of a company being a pyramid scheme is a structure that allows for easy exploitation of recruits like unreliable buyback programs for unused inventory. 

How to Protect Yourself

As with any business venture and opportunity, when you’re investigating a multilevel marketing company, make sure you gather all the information you can. From the MLM company’s products to its operations, get all the paperwork you can on the company’s sales, its business plan and/or marketing plan. Ask other people involved (past and present) with the company how they feel about it. Do they actually make sales? And are the products/services high quality?

Above all, make sure the MLM’s recruitment meetings do not have excessive, inflated claims about how much money you’re going to make by becoming a distributor for them. It’s also important to make sure you will have all the tools necessary to be successful, like payment processing. An MLM merchant account, for example, can ensure you have the payment options you need to be successful.

Author Bio: Blair Thomas has been a music producer, bouncer, screenwriter and for over a decade has been the proud Co-Founder of eMerchantBroker, the highest rated high risk merchant account processor in the country. He has climbed in the Himalayas, survived a hurricane, and lived on a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.