Multilevel Marketing Vs Pyramid Scheme
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Multilevel marketing (MLM) and pyramid schemes are two business models with some similarities, but they are different.
Multilevel marketing is a legitimate business model in which a company sells products or services through a network of distributors. Distributors earn a commission on their sales and the sales of other people they recruit to join the network. MLM can be a legitimate way to make money and sell products as long as high-quality products or services are. The company is transparent about how much money distributors can realistically earn.
On the other hand, a pyramid scheme is an illegal business model in which people are recruited to pay into the company and then recruit others to do the same. No actual product or service is being sold, and the only way for people to make money is by recruiting others into the scheme. Pyramid schemes are unsustainable because, eventually, there will not be enough new people to recruit, and the pyramid will collapse.
It can be challenging to tell the difference between a legitimate MLM and a pyramid scheme, but some red flags to watch out for include the following:
- The company emphasizes recruiting over selling products
- The company does not disclose how much money most distributors make
- The company does not have a viable product or service
- The company requires a significant upfront investment to join
Suppose you are considering joining an MLM or investing in a business opportunity. In that case, it is essential to research and ensures the company is legitimate before investing any money.
Some examples of multilevel marketing companies include:
- Mary Kay
These are all well-known companies that sell a variety of products, such as health and beauty products, home goods, and personal care products. Distributors for these companies earn commissions on their own sales and on the sales of other people they recruit to join the network.
An example of a pyramid scheme would be a company that requires people to pay a fee to join and then asks them to recruit others to do the same. No real product or service is being sold, and the only way for people to make money is by recruiting more members into the scheme. These types of schemes are illegal and often collapse when no more people are left to recruit.