In this post, we expose some dark realities which most people ignore and are uninformed about MLM.
Even after so many scams, why don’t these MLM companies get shut down? Why do people lose their money even now?
Contents
What is MLM?
MLM (Multi-Level Marketing) is a business model that is used by some direct selling companies to sell their products and services. MLM companies encourage their existing members to promote and sell their products to other individuals and recruit new members into the company.
Within the structure of an MLM company, there is always a hierarchy of roles, or levels, that can be ascended through successful sales or recruitment, which are tied to rewards and promotions for the distributors.
The distributors get a commission on the sale of the product as well as compensation for sales their recruits make.
Read: What is Direct Selling? Why it is NOT Profitable Anymore
Is MLM Legal?
MLM is a legal business model in the USA and most of the European countries but in countries such as Bangladesh and Saudi Arabia banned MLM.
China, India, Japan, and other European countries have their own laws and guidelines to regulate the MLM model.
If MLM is a legal business practice, often considered controversial because of the pyramid scheme.
Critics say that the MLM business model has many similarities to a pyramid scheme, which is illegal and considered fraud in almost all countries.
Read: Life Activated Brands Review
How to Identify the Pyramid Scheme?
To identify pyramid schemes and frauds there are major differences between MLM and illegal pyramid schemes which helps us to clarify:
| MLM | Pyramid Scheme |
| MLM focuses on both recruitments as well as selling products. | Pyramid schemes focus primarily on recruitment, rather than selling products. |
| MLM gives commissions on selling products. | While pyramid scheme company gives a commission on recruitment. |
| MLM companies give a buyback guarantee for any products that the distributor is not able to sell. | The pyramid scheme has no such agreement. |
| MLM company provides a real product or service that benefits a customer. | Pyramid schemes are widely used dummy products for pretending to be MLM. |
| MLM companies grow slower. | Pyramid schemes grow faster as compared to MLM companies. |
| The purpose of recruiting new members in MLM is to sell as many products as possible. | The purpose of recruiting new members in a pyramid scheme is to take advantage of the investments of their new members. |
| MLM companies take a minimum joining initial amount of their products. | While pyramid schemes ask for a very large investment before a distributor can even sign a contract to begin working for them. |
So, it is an easy task to examine any multi-level marketing (direct-selling) company by analyzing these major key points.
Read: Beachbody Review
Pyramid Scheme Vs Ponzi Scheme
Many people get confused between Pyramid and Ponzi schemes, some consider them the same but they both have some major differences such as:
| Pyramid Scheme | Ponzi Scheme |
| Must receive new distributors to receive payments | No recruiting is necessary to receive payment |
| Doesn’t promises any high return | Promises high return with zero risk to attract more investors |
| Pyramid schemes perform money-circulation | Ponzi schemes also perform money-circulation |
| Pyramid schemes have a membership structure and rigid compensation plan | Ponzi scheme doesn’t have a member structure and rigid compensation plan |
| Required one-time investment | Required continuous investment |
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