| Multilevel Marketing opportunities and Pyramid | | | | inventory or service to consumers. This business |
| Schemes can certainly appear to look very similar. | | | | system also allow the company to keep |
| Therefore many people make the mistake of | | | | overhead and labor costs to a minimum by |
| using the terms interchangeably. Although MLM's | | | | directly relating compensation to sales or as more |
| and Pyramid Schemes may look alike they | | | | commonly known as commission based sales. |
| certainly do no act alike. There is one distinct | | | | Many industries use commission only based sales, |
| difference that stands out and is easily identified | | | | so this concept is nothing new nor should it raise |
| by anyone looking to become involved in a | | | | any red flags to an industry. Most every direct |
| business opportunity. That one difference is | | | | sales company, such as radio, television, |
| product or service. A MLM company offers a | | | | automobiles, etc. use some sort of commission |
| marketable product or service that offers value | | | | based compensation. Other industries such as real |
| and benefit to the consumer and all commissions | | | | estate, mortgage and insurance use primarily |
| paid are based on the sales of such. The Pyramid | | | | commission only pay structures and pay |
| Scheme offers no valuable product or service and | | | | structures that allow multiple sales people to |
| income is directly based on the number of recruits | | | | receive compensation for one sale. MLM systems |
| added to the pyramid. Such schemes and pay | | | | pay an affiliate for each sale as well as a |
| structures are illegal in the United States, Canada | | | | percentage of that sale gets paid to another |
| and many other countries. | | | | affiliate. This type of compensation plan allows |
| MLM's have one huge advantage over tradition | | | | employees, contractors, sales agents, distributors |
| business models (storefront, office, etc.) in that | | | | and affiliates to set their own goals and pace, with |
| the MLM structure allows the affiliate to become | | | | the ability to earn an endless level of income. |
| part of a business system or model that is | | | | So how can you differentiate between a |
| already in place. Such a model or system is | | | | legitimate MLM and a scam or Pyramid Scheme? |
| designed for distributing products to consumers. | | | | The following is a standard test that is useful in |
| Whereas, a tradition system of business requires | | | | determining if the company is a Pyramid Scheme: |
| larger amounts of time, is labor intensive and the | | | | 1. Is the focus more on recruiting distributors than |
| start up costs and capital can be excessive. In | | | | marketing the product? |
| fact the average franchise cost $25,000 just to | | | | 2. The product, if any, offers no value or benefit |
| purchase in addition to all of the start up and | | | | to the consumer? |
| holding costs and has an average breakeven time | | | | 3. Is there a focus towards building high numbers |
| of 3-5 years. The MLM business model offers | | | | of recruits that overpowers the company's desire |
| training, marketing models, and a business system | | | | to market the product towards theconsumer? |
| all in place to expedite the business development | | | | 4. Are you required to invest money without |
| of the affiliate in promoting and distributing that | | | | receiving a valuable product? |
| company's product. Many affiliates are able to turn | | | | 5. Does the compensation plan base commissions |
| profit in weeks or months. | | | | on the number of recruits? |
| The Multilevel Marketing system is the business | | | | If you answered yes to any or all of these |
| model of choice by many company's for one | | | | questions and there is no real product of value to |
| simple reason. That reason is that MLM allows for | | | | a consumer, then beware, the company is most |
| a larger network of affiliates distributing product; | | | | likely operating under what may be defined as a |
| thus the company is able to move more | | | | Pyramid Scheme or Scam. |
