What’s the difference between multi-level marketing (MLM) and pyramid schemes?


Sometimes referred to as networking marketing, multi-level marketing (MLM) is pretty much what it sounds like. It’s a marketing system where people earn income from the sales they make personally. But they also as earn on the sales of others that they have referred into the business opportunity.

Unfortunately, multi-level marketing (MLM) has received a negative reputation in the past. Newer, more creative businesses use new terminology to refer to multi-level marketing such as: word of mouth or direct sales.

Multi-level marketing uses a product or service provider’s customer base as it’s sales team. They are independent contractors and earn income from the sales they make. They also earn residual income on the sales of other team members that they have referred. Hence the name multi-level marketing.

Pyramid Schemes

On the other hand, a pyramid scheme is just that – a scheme. In a typical pyramid scheme, no real or tangible goods or services are sold. The promise of making large amounts of money in short periods of time is the selling point.

A pyramid scheme is virtually impossible to maintain. However, those who get in first are the ones that are usually able to cash out with substantial monetary gains.

Since it must continually enroll new customers into a pyramid scheme, it usually crumbles before it succeeds. Leaving those at the bottom – out of luck.

Most well-known pyramid schemes involve the person at the top of the tier paying a sum of money and then enrolling others who pay the same amount. When a certain number of enrollees is reached, the top enrollee leaves with his or her money. And then the game continues.

Unfortunately, individuals at the bottom level are the ones left out in the cold. It’s nearly impossible to continue to recruit individuals who are willing to plunk down hard-earned money with no product or service being sold.

The real difference between pyramid schemes and multi-level marketing (MLM) is that multi-level marketing recruits individuals on a tier system. But products, goods, and services are actually being sold.

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