Archives for July 2010

Illegal Pyramid Scheme vs. Legitimate Network Marketing

When people offered an opportunity from a company with MLM model of distribution, they are often concerned about not to get involved in a pyramid scheme. Too often we were confused and scammed by illegal companies that were using a pyramid structure and claimed to be legal businesses but in the end happen to be a Pyramid Scheme.

Pyramid Scheme is a business model in witch participant attempt to make money only by recruiting new participants into the program. Participants are required to make extensive entry fee or “investment” in training materials or other tools, neither of which are refundable. Often no product or service at all or product without real use or demand is involved. Such schemes are definitely illegal.

Although Pyramid schemes and MLM share the same organizational structure MLM is not the same as Pyramid scheme.

Currently there is not enough statistics to make a stable statement about how exactly differentiate them but there are a few known major differentiations. Below you can see the main difference in between both:

Illegal Pyramid Scheme:

1.    Participants paid directly just for the recruiting other participants
2.    No product or service (sometimes product of no real value) is involved
3.    Substantial capital is required in order to join
4.    Limited life time, usually less than five years

Legitimate Network Marketing (MLM) Company:

1.    Distributor paid only for the product being sold
2.    Product is exclusive with real consumer demand
3.    Minimal or no start-up cost is required to join the company
4.    Company remain in business for significant period of time