Have you fallen into the trap of a Multi-Level Marketing Scheme (MLMs) – Pyramid Scheme? Are you not sure how to spot one? Or even how to tell them apart? Don’t feel bad, you aren’t alone.
First, let’s walk-through the most likely scenario of how you will encounter either one in this golden age of social media. One day you receive a friend request from an old high school friend. It starts innocently enough, a nice hello, quick pleasantries. Then boom, that friend starts to tell you about this aaaahhhmazing product that you just have to try. It’s great, so great. All you need to do is order a very large quantity of it from them. But it’s ok, because the product is so great. Then you get your friends/family and their friends/family to buy large quantities of it to sell to their friends/family. They make tons of money, you make tons of money, and all of your problems are over. It’s gonna be great.
Does any of this sound familiar? If yes, then you, my friend, are right in the middle of a good old fashioned Multi-Level Marketing Scheme (MLMs) or Pyramid Scheme.
Spoiler, it’s probably not going to be great.
But not to worry. We are here to help you do your best in avoiding the trap of MLMs & Pyramid Schemes.
What Is The Difference Between MLMs – Pyramid Schemes?
We talked about how you will most likely be approached. Now let’s talk about what exactly MLMs – Pyramid Schemes are. First, the key differences:
Multi-Level Marketing isn’t illegal, as long as you are selling actual products.
Pyramid Schemes are illegal.
Confusing right? Let’s dig in first on Multi-Level Marketing Schemes. On the surface, MLMs are an attractive business proposition to many people. They offer an opportunity to become involved in a system for distributing products to consumers. You don’t have to start a business from scratch. That is hard work. With MLM, you have the support of a direct selling company that supplies the products and most times the training as well.
As we mentioned above, each person who enrolls—including you—is required to “buy in.” Often, the buy-in involves purchasing a certain number of products that the MLM is based around. Everyone above you gets a cut of that money. And you get a cut of the money from everyone below you. The more people you enroll and sell products to, the more money that you make. The more people that those people enroll and sell products to, the more money that you make.
The Entire Purpose Of MLM Is To Move Product.
The theory behind MLM is that the larger the network of distributors, the more product the business will be able to sell.
Unfortunately, not every multilevel marketing opportunity is a legitimate business opportunity. The big difference between MLMs – Pyramid Schemes is in the way that the business operates. With a Pyramid Scheme the point is never about selling product. It’s simply about enrolling and increasing numbers of people, all of whom are required to buy products.
Pyramids Schemes Exist To Take Money And Recruit
As you can imagine, Pyramid Schemes can be difficult to recognize right away. However, they all share one glaring characteristic. They promise you large profits based primarily on recruiting others to join. Profits are not based on the product sold. Some will have products. But those products are there simply to disguise the pyramid scheme.
One way they do this is through a term called: inventory loading. This occurs when a company’s incentive program forces you to buy more product than you could ever sell. Doing this pads the pockets of the people at the top of the pyramid. Yet, minimal products ever actually hit the market place. They just collect dust in your garage. But when a company shows their sales metrics, they may look great on the surface. Until you realize that all of the sales only occur between the people inside the pyramid.
If you somehow find yourself at a Pyramid Scheme recruitment meeting. There will be promises of large sums of money. You will be openly discouraged from questioning the scheme. Victims often find themselves tricked into participating. At a recruitment meeting, you might hear phrases like “this is a ground floor opportunity which will change your life” or “if you act now and work hard for three to five years, you can retire and live off of the residual income.”
However, all of that is far from reality. Since most of the members in the scheme are at the bottom, most participants will not make any money. In fact, since they had to pay to join, they will end up losing money.
How To Avoid MLMs – Pyramid Schemes?
It is understandable that people often have difficulty telling the difference between an illegal pyramid scheme and a multi-level marketing opportunity. Governmental regulators continue to debate where the legal lines are drawn. So probably best to avoid both. Here are some tips on what to look out for so that you can avoid the trap of MLMs – Pyramid Schemes:
- If you’re being offered overnight success or passive income promises, it’s probably too good to be true. People who make money with legitimate MLMs put a lot of time and effort into their businesses.
- Strange or unnecessarily complex commission processes.
- Beware when products or services are simply vehicles for recruitment. Even high quality products may serve as cover for recruitment activities.
- Be skeptical of plans that claim you will make money through continued growth of your “downline” — the commissions on sales made by new distributors you recruit — rather than through your own sales of products.
- Beware when presented with “testimonies” from other distributors. These “success” stories rarely reflect reality.
- Avoid any companies that sell products at prices well above retail or sell products that are difficult to value, such as health and beauty aids, new inventions, or “miracle” cures.
- A pyramid scheme can take many forms, but generally involves the promise of making money by recruiting new people.
So in closing, just decline that friend request and move on with your life.