Thursday, November 26th, 2020

How Does MLM Compare to Pyramid Schemes?


by Rahimah Sultan








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If you’re considering a multilevel marketing (MLM) opportunity, be very cautious. MLM and pyramid schemes can be very similar.

How does MLM compare to pyramid schemes?


What is MLM?

Some people like the MLM business model. You have the opportunity to become involved in a system for supplying products to consumers. MLM associates have the support of a direct sales company so they don’t have to start a business from scratch. Some of the companies train you.

When you become a MLM distributor, associate, consultant or whatever term the company uses, you make money, by selling products to other MLM participants who are not already a member, when you sign them up.

You earn money on your sales as well as a percentage of the sales of the new distributors you bring in. The people you bring in are your downline. Sometimes you get bonuses after reaching certain milestones like bringing in a certain number of new people or selling a certain amount of product. You can also win cash, trips and automobiles.

MLM can be a legitimate business opportunity, but not always. MLM is legal in Canada and most of the United States, whereas pyramid schemes are not.


What is a pyramid scheme?

If you’re looking for a legitimate business opportunity, it can be very difficult to tell the difference between an MLM opportunity and a pyramid scheme.

A pyramid scheme also offers the opportunity to make money by signing up others and achieving certain levels.

Unlike MLM, a pyramid scheme exists solely to get your money and then use you to recruit other distributors.


Ask yourself the following questions before signing on:

Do you have to invest a large amount of money up front to become a distributor? MLMs do not require large startup costs.

If you have to pay for inventory will the company buy back unsold product? Legitimate MLM companies offer 80% buy back.

Does the company offer actual products or services? MLM companies depend on an actual market for products and services. Don’t sign up if the company doesn’t seem to have any interest in consumer demand for its products.

Is the focus more on recruitment or products and services? Pyramid schemes focus on fast profits from signing up people and getting their money. If this seems to be the case, run.

How to Determine the focus.

The pyramid scheme focuses on fast profits from signing people up and getting their money.
If the emphasis is on recruitment rather than on selling the product or service do not sign up.

Another trademark of the pyramid scheme is the offer of commissions for recruiting new members. This is what matters in a
pyramid scheme, not the products or services being offered.


When you’re deciding on a business opportunity thoroughly check out the company. Get all the information you can on its products and operations.

Check out the business or marketing plan. Talk to others who have experience with the MLM company and its products. Determine if there are real products being sold and the quality of these products or services.

Check with the Better Business Bureau to see if there are any complaints against the company.

When attending recruitment meetings, listen very carefully for claims of you being able to make amazing amounts of money. That should set off the alarm bells for you.

Although being part of a successful multilevel marketing company can be both profitable and fun, unfortunately, some supposed MLM opportunities are just cons designed to flatten your wallet and trash your dream of running a business.

So, How Does MLM Compare to Pyramid Schemes? MLM is a legitimate business opportunity, whereas pyramid schemes are scams to take your money.


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