MLM or multi-level marketing is quite a buzz-word these days. But how do you tell (legal) mlm from (illegal) pyramid selling?
How can I tell a legal Network Marketing business from an illegal Pyramid?
Network Marketing — also known as MLM ('multi-level marketing'), relationship marketing and referral marketing, is the 21st century way for entrepreneurs to build a high income, without having to make huge financial investments. Most MLMs don't need any premises beyond a computer desk and perhaps a filing cabinet (though some may need storage space for product). Unlike franchises (the business opportunities of the 20th century) in general the upfront investment is small and training is usually free or very cheap. Overheads are low or non-existent, profits can be very high indeed.
At first glance, MLM is very similar to the pyramid schemes which have been made illegal in most of the West. In the pyramid, a representative pays his initial stake when he is recruited and is then shown how to recruit other representatives. Every representative recruited brings a bonus and adds to the potential residual income. But, if no customers are required, sooner or later the whole structure will collapse, because there is nowhere for the income to come from. In pyramid schemes, the people at the top are the only ones who can make money, because there is a limited pool of potential recruits, and no other source of income. It's pretty obvious that no company can survive for long without any customers.
How to distinguish a Pyramid from an MLM
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In MLM, it is possible for a recruit to overtake the person who recruited them, and end up making more money than them |
In a pyramid scheme, your place in the matrix is fixed. You cannot overtake your sponsor. Even if they do nothing after recruiting you, they will still make more money than you. |
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In MLM, nobody makes any money until there is a sale: the company's income derives from its customers, and so does the income of the company's representatives |
In a pyramid scheme, you are paid bonuses for recruiting other representatives, regardless of whether or not they achieve any sales or gain any customers. Because there is no income to the company, sooner or later this scheme will collapse. |
So there you have it. When you look at the differences, it is quite clear why pyramid schemes were made illegal in the first place; they're just a scam. In contrast, network marketing is an excellent way of making money by recommending products and recruiting others to do the same; it is the 21st century answer to the franchise. It's hardly surprising that 10% of new millionaires made their money in MLM... and who knows how many settled for just half a million, or less?
In my opinion, the best opportunity available in the UK and Europe for residual income is Tiscali. This opportunity is expanding all the way across Europe, from the UK, across Germany and Spain and on via the Czech Republic - well, watch this space!
In the US, you might want to join the IAHBE here.
Finally, let me wish you as much success as you deserve in your new venture.
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