Understanding the difference between MLM and Pyramid Schemes

Understanding MLM Systems and Pyramid Schemes

Whether someone has lost a job or is seeking to supplement a current position by working on the side, there are many reasons for individuals from all backgrounds to consider alternative means of earning money. To this end, some enterprising individuals may be drawn to a home business. Such prospects are wonderful opportunities, with flexible hours and unlimited earning potential. However, when starting a home business, it is important to be sure that it is a smart and legitimate opportunity.

Success with MLM Systems

For many people, starting a home business is easier with structure. Because of this, MLM systems are often popular options. MLM, which stands for multilevel marketing, refers to a specific business model that involves buying into an established system. After buying into this system, individuals would then have access to the product and would be licensed to sell the product to others. In this way, individuals who utilize MLM systems to earn money will pay an upfront fee to have access to the product, but those with business savvy and commitment will easily be able to recoup that fee by leveraging the product to others.

MLM systems have been around for many years, with a number of established brands that function on this method. Because of this, individuals can easily find an MLM system suited to their interests and hobbies. From makeup to kitchenware to car insurance, anyone can find an MLM system that will work for their lifestyle.

The Problem with Pyramid Scams

As profitable and established as some MLM systems may be, it can be difficult to discern which ones are actually legitimate. After all, there are a number of scams that mimic the set up of MLM systems. These less than savory systems are commonly known as pyramid schemes, and are illegal in most countries. The idea behind a pyramid scheme sounds very familiar to an MLM system: individuals have to buy into the system to gain access to the product, which they can then sell to others in order to earn money.

The key difference between a legitimate MLM system and a pyramid scheme is the risk differential. In a pyramid scheme, the upfront fee is often much more significant and cannot be easily recouped, even by a dedicated individual. This is because a pyramid scheme either has a less than satisfactory product or simply charges an exorbitant amount to buy in. The person who starts the scheme may easily recruit new individuals, enjoying the profits from the high buy in fee, while subsequent members have an increasingly difficult time hocking the overpriced or less than desirable product. As new recruits begin to dry up, the whole scheme collapses, leaving later recruits at a loss while the founders walk away with a hefty sum. This is why a pyramid scheme will often lack the longevity of established MLM systems.

MLM Systems and Pyramid Schemes: Understanding the Difference

For those who are interested in MLM systems, there are ways to distinguish viable systems from pyramid schemes. First, it is essential to look at the cost of joining in comparison to what is being gained. If the only way to recover the upfront investment is to recruit new people into the scheme, then it is likely that the system is illegitimate. Another giveaway in identifying a pyramid scheme is to look closely at the marketing campaign being pitched. If the majority of the attention is spent on how to secure new recruits, then chances are it is nothing more than a pyramid scheme. A true MLM system will focus much more on the perks and advantages of the product.

Overall, when looking into an MLM system, individuals should simply be vigilant and aware. A smart investor will always look at the long term profitability of the system, verifying the quality of the product and how established the company may be. A little research on the company or individual behind the system can be a smart choice. These extra steps may be somewhat time consuming, but can be a critical step to avoid getting ripped off. As long as individuals choose wisely, it is easy to make money on the side with an MLM system.

How to Tell the Difference Between Legitimate MLM Companies and Pyramid Schemes

In these challenging economic times, more and more people are thinking outside of the cubicle when it comes to ways to make money. Conventional 40-hour per week jobs with benefits and retirement packages are becoming scarcer by the day, forcing hardworking people to look elsewhere for the means to support themselves and their families. For motivated folks who enjoy sales, multi-level marketing (MLM) can be rather appealing; however, it can be difficult to determine if a money-making opportunity is a legitimate MLM business or simply a pyramid scheme.

Part of the problem in making this determination is that legitimate multi-level marketing businesses and illegal pyramid schemes usually look very similar in structure. Scammers who devise pyramid schemes do this on purpose as one of the many tricks they use to recruit people and take their money. Both of these types of businesses are structured like a pyramid with the highest-level personnel at the top and each level expanding out towards the bottom as more people are recruited. How this works is that the initial participants each recruit people, and then each of these recruits goes out and recruits people. These new recruits follow suit by recruiting more people and so on, thus expanding the business and the pyramid structure.

This pyramid structure can actually be quite profitable when it is a legitimate MLM business and each level is being paid appropriately for bringing in new recruits. This leads us to a crucial difference between good MLM businesses and bad pyramid schemes: the stability of the pyramid. In a well-organized multi-level marketing business, the pyramid is reasonably stable and can prove very lucrative for participants; in a pyramid scheme, the structure is not stable and will eventually collapse, leaving all but the highest-level participants losing out on most or all of their investment.

There are many good, legitimate MLM opportunities available that can help you supplement your income or completely support your family; the trick is being able to tell which opportunities are legitimate and potentially profitable and which are nothing more than pyramid schemes devised to take your money.

Here are a few things to do and consider when checking out a money-making opportunity:

Study the company's track record.
Ask questions. If there is no one available to answer questions, that is a quick way to know it is not legit.
Learn about the product.
Understand the restrictions as spelled out by the company.
Ask for input and advice from other participants, friends or distributors who work with the company.
Look for reviews online.
Read everything you can find about the company and look for anything that does not sound quite right.

Pay particular attention to the sales and recruitment pay systems, which will help you determine if the company you are looking at is a legitimate multi-level marketing company or a pyramid scheme. Legitimate MLM companies generally focus more on sales; whereas, illegal pyramid schemes generally focus primarily on recruitment.

Also, pay attention to the ratio of your initial investment and the compensation you have the potential to receive. Ask yourself if you will be able to quickly make back your initial investment with the payment structure offered. If so, the business is more likely a legitimate MLM company. If not, you might be looking at a pyramid scheme.

Pyramid schemes can be very deceptive and use a wide variety of tricks to fool people into handing over their hard-earned money. They can look legitimate at first glance and have certainly been able to fool smart people who normally would not fall for a scam. Remember, while pyramid schemes might look like a good idea with high potential for making a quick buck, this is simply not true. Pyramid schemes rely heavily on recruitment and the investments of new recruits to keep the money flowing. Once the pyramid can no longer expand, due to a lack of new potential recruits, it will fall. And, when it falls, you will lose your money.

Fortunately, there are plenty of legitimate MLM companies out there that are proving profitable for their participants every day. People who enjoy sales and are self-starters can easily supplement their current income by signing on with an MLM company, and many people are earning a comfortable income solely from their multi-level marketing work.

Do not let the fear of pyramid schemes cause you to avoid considering working with a multi-level marketing company. Just remember that you need to follow the tips listed above and make sure that you do enough research on the company to allay any doubts of its legitimacy. When you find a legitimate MLM company and begin to see the earning potential possible, you will quickly see why so many people are turning to the lucrative field of multi-level marketing to improve their incomes and their lives.