The big difference between multi level marketing and a pyramid scheme is in the way the business operates. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other suckers (ahem - distributors). The entire purpose of multi level marketing is to move product. The theory behind multi level marketing is that the larger the network of distributors, the more product the business will be able to sell.
Use these questions as an acid test if you're in the least doubt as to whether the opportunity you're considering is multi level marketing or a pyramid scheme:
Is It a Pyramid Scheme?
1) Are you required to "invest" a large amount of money up front to become a distributor? This investment request may be disguised as an inventory charge. Legitimate multi level marketing businesses do not require large start up costs.
2) If you do have to pay for inventory, will the company buy back unsold inventory? Legitimate multi level marketing companies will offer and stick to inventory buy-backs for at least 80% of what you paid.
3) Is there any mention of or attention paid to a market for the product or service? Multi level marketing depends on establishing a market for the company's products. If the company doesn't seem to have any interest in consumer demand for its products, don't sign up.
4) Is there more emphasis on recruitment than on selling the product or service? Remember, the difference between multi level marketing and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, run; it may well be a pyramid scheme.
These next two questions will help you determine what the focus of the company is:
5) Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself? This is the signature of a pyramid scheme operation.
6) Are you offered commissions for recruiting new members? Another pyramid scheme trademark. It's the number of people who are willing to sign up that matters in a pyramid scheme, not the products or services being offered.
How to Protect Yourself From Pyramid Schemes
As always, when you're investigating a potential business opportunity, you'll want to gather all the information you can about the multi level marketing company's products and operations.
Get (and read) written copies of the company's sales literature, business plan and/or marketing plan. Talk to other people who have experience with the multi level marketing company and the products, to determine whether the products are actually being sold and if they are of high quality. Check with the Better Business Bureau to see if there have been any complaints about the company. And listen carefully when you're at that multi level marketing recruitment meeting. Inflated claims for the amazing amounts of money you're going to make should set your alarm bells ringing.
Being part of a successful multi level marketing company can be both profitable and fun, but unfortunately, some purported multi level marketing opportunities are actually pyramid schemes designed to flatten both your wallet and your dream of running a business.
