Multi Level Marketing Vs Pyramid Scheme. There is basically no difference between them. However when you compare Multi Level Marketing Vs Pyramid Scheme, pyramid scheme is illegal, and Multi Level Marketing is somewhat legitimate business model but it has huge failure rate among people who were involved in it.
Multi-level marketing is a strategy that some direct sales companies used to encourage their distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s “down line”.
All distributors also make money through direct sales of products to customers. When they sell a product, they earn some commissions. There are many problems and issues with MLM business model, and I strongly recommend that you stay away from MLM. Here are some negative MLM aspects.
Multi Level Marketing Vs Pyramid Scheme. Are they the same? I think so!
Multi-level marketing is a legitimate business strategy (kind of), but it is controversial.
Problem with MLM is that it has an aspect of a pyramid schemes. They use money from new recruits to pay the people at the top, often taking an advantage of people by pretending to be engaged in legitimate multi-level marketing.
At the end, only top players in the company earn money while others struggle to cover even basic monthly costs. In other words, top players earn money and commissions at the expense of huge down line of participants / victims who are constantly losing money.
For winners at the top, there need to be losers below.
Let’s take MLM company called Herbalife Ltd. for example. They are one of the most popular multi-level marketing companies to be investigated as a pyramid scheme.
Herbalife Ltd. promoters / distributors can make money just by selling the company’s products, but they must purchase and sell thousands of dollars’ worth of the products before they can have a profit. Critics allege that the company’s top recruiters receive the vast majority of profits.
Pyramid scheme relies on the constant inflow of money from additional investors that works its way to the top of the pyramid.
Some people even like to call pyramid scheme as MLM’s ‘evil twin brother’. A pyramid scheme is an illegal investment scam based on a hierarchical setup. The only way pyramid scheme can survive and generate wealth is by promising extraordinary returns to new recruits; the only way these returns receive payment is by getting additional investors.
As the scheme begins, the earliest investors will receive a high rate of return, but these gains are paid for by new recruits and are not a return on any real investment.
Pyramid schemes can be spotted by their greater focus on recruitment than on product sales. I never recommend that you get involved in pyramid schemes. It is not a safe and solid way to build up a business. Even if you succeed in any MLM business and make money, when it shuts down (when the pyramid collapses), your MLM business is gone for good, and you will not earn money anymore.
It is simply not a safe and sustainable business model. Many MLM’s do not last very long and they are under FTC (Federal Trade Commission) investigation because people were scammed by their ‘business opportunities’. There is much, much better way to money online without having to recruit people and it is called AFFILIATE MARKETING.
An average of 99.71% of participants are losing money with MLM (!!!)
This is extremely devastating statistic. So is it possible to make money at all doing an MLM? According to Jon M. Taylor, MBA, PH. D., Consultant & Expert Witness, after finishing all of his analysis and research on various MLM data, he wrote a book called Multi-level Marketing Unmasked and he concluded: “In every case, using the analytical framework described, the loss rate for all these MLM’s ranged from 99.05% to 99.99%, with an average of 99.71% of participants losing money in an MLM.
On average, one in 545 (ONE IN FIVE HUNDRED AND FOURTY FIVE) is likely to have profit after subtracting expenses and 997 out of 1,000 individuals involved with an MLM lose money.
If you think that you can be 1 in 545 (or top 1%) who will have profits from MLM business models, then by all means go for it. You can maybe succeed in MLM if you are one of the earliest participants when the company is starting out.
But like I said, this is one big MAYBE. MLM is simply not a stable business model and nearly everything depends on how successful you will be in scamming someone else by getting them to buy something off of you or you are going to have to sell people into a scheme.
Just like GET-RICH-QUICK schemes, MLM companies and/or promoters will bombard you with the fairy tales of a better life, big earnings with little effort, how someone there through this “work” made millions, planes, yachts etc. You can see example below.
MLM’s always have a fee and price to join
In other words, nothing is free in MLM world. Most MLM’s have a fee to join, and some of them are charging even hundreds of dollars if you want to start a work with them. Most MLM’s require you to purchase the product, and most MLM’s have products that are overpriced to support the compensation structure of the program.
Because you are an independent representative, you will need to pay for a product kits and material. Also, some MLM companies will even charge training material (if they have any). Yes, even that is not free. If a company pressures you constantly to pay for training, consider this as a big red flag.
MLM products and services are too expensive and overpriced
MLM companies are overcharging their products just to support the commission structure and the overall scheme itself. Take Vemma for example. Vemma is an MLM company that is selling energy drinks and some other supplements. To get started with Vemma you will need to pay $499.95 for starter kit (or $999.95 for bigger product kit).
That is ridiculously expensive, and on top of that, there is no guarantee that you will sell anything, ever. Plus, you need to have a minimum of $160 auto delivery of products to keep an account active (!?). They also have a training DVD.
For a price of course. DVD is called Driving force and you will have to pay an additional $49.95 if you want to watch training videos. You do not have to buy the DVD, but this is total exploitation.
Their promoters are talking fairy tales about THOUSANDS of dollars of profit in the first few months, after you deposit ‘only’ 500$ to start a business with them.
For example, for $500 you can buy PREMIUM membership for about year and a half at the Wealthy affiliate university.
There are also some MLM companies that are not too expensive. For example MLM company called Global Domains International offers domain names (only .ws) and web hosting. Monthly fee is only $10 (or $120/year) which is affordable, but you can have a.com,.org,.net domains (which are more popular and more attractive than .ws) at Wealthy Affiliate for only $14/year.
I think you understand what I am talking about here. You need to buy their overpriced products in a recurring manner to stay part of the program and then to make any money with the “opportunities” they are offering.
MLM companies suggest to promote products to your family, friends, co-workers, and relatives
This will put your reputation on the line. This will also create awkwardness with these people, because they will feel some sort of pressure and they will think that you want to use them just to earn money (which is actually true). There is nothing more annoying than listening to somebody blither about their MLM product to you.
The most ironic part is that most promoters don’t even use the products they are promoting but they are forced to promote it because of the continuity aspect of the program. Also, if you own similar product or products they are offering, they will somehow try to convince you that their product is “better” than yours.
I’ve had promoters that were trying to convince me “logically” how their product (some skin care lotion or similar B.S.) is “the best” for me and that is “exactly what I need” and my skin will be “beautiful”.
She was even pestering me how her complexion was better than mine, because she was using this lotion and I wasn’t. Please give me a break, will you? I was polite with her, because she is somebody that I used to know (FYI, I didn’t buy the product), but I was bored to death with her “lecture” about this product she was offering.
You are not building a business with MLM
Are you confused what is the real business in MLM world, selling or recruiting? Well, you are not alone. Recruiting salespeople or distributors who cannot make a profit from selling but must also recruit others is not a business. It is a pyramid scheme. Many people who were involved in MLM realized after some time (and with the hole in their wallet) that it is simply not worth it.
99% of people fail with multi-level marketing schemes because their motivation is based on recruitment of others (which is a constant draining of their energy) or high pressure “take it or leave it” sale tactics versus offering a quality product to people that are already interested in that product (Affiliate marketing).
People who were involved in MLM started to lose passion, and they realized how annoying and awful they must have been to their friends, family or co-workers. If you want to market the products, there is simply better way and it is called Affiliate marketing. Period.
Here are some of the most popular MLM’s that are still alive and not shut down by authorities (YET), and you can check them out if you want.
- Pampered Chef (www.pamperedchef.com)
- Amway (www.amway.com)
- Avon (www.avon.com)
- Mary Kay (www.marykay.com)
- Tupperware (www.tupperware.com)
- Herbalife (www.herbalife.com) – Under pressure by authorities
- Oriflame (www.oriflame.com)
- USANA (www.usana.com)
- Partylite (www.partylite.com)
- NU skin (www.nuskin.com) – Under pressure by authorities
If you want to work with MLM companies, you need to be aware of the huge failure rate
It is OK to participate in MLM programs and companies if that is your passion. However, you need to know that MLM is for someone who is familiar with this business model and understands what’s involved when joining an MLM company and frankly is aware of the failure rate (more than 99%) in MLM world.
Only a small percentage of people manage to get away with a positive zero, let alone profit.
MLM has one devastating statistic. None of the traditional jobs / businesses do not have pronounced percentage of failure rate and giving up as MLM. Also, none of the traditional jobs / businesses are the subjects of intense criticism as is the case with MLM. Over 99% of participants do not make a profit.
In fact, participants spend much more than they earn. Your chances are better at betting or gambling (of course I do not recommend it, I am just giving an example).
Create a safe online business with AFFILIATE MARKETING instead and sell product to people who are already interested in that product. Legitimate Affiliate programs do not require startup kits of any kind, and they are free to join.
On top of that you will receive free, personalized website with free maintenance. You can participate free for as long as you want.
Do you have any experience with MLM companies? Post a comment below and join the discussion. I would love to hear an opinion about this particular topic.