MLM – isn’t that a pyramid scheme?

The two are quite similar and are therefore often lumped together for convenience. Yet there are important differences between pyramids and network marketing (also called MLM (Multi Level Marketing)), not to mention that the former is illegal.

MLM vs. pyramid

The most important feature of a pyramid scheme is that money must be invested in exchange for nothing more than a vague hope of profit, if and as long as enough people (continue to) do the same. MLM, on the other hand, is essentially a distribution method for selling products or services, linked to a graduated system of commissions. Optionally, but not required, additional bonuses can be earned by recruiting other salespeople.

Higher income than the top

In the latter case, early participants have a greater chance of earning a substantial income than later participants. But late entrants can still earn more than their predecessors, as long as they work hard for it. They will, so to speak, have to cast more lines into an already heavily fished pond. This is also where MLM differs from pyramids (and from regular companies too!), where it is impossible to earn more than the person at the top.

Selling product or hot air

Bona fide MLM companies charge new participants an entry fee in the form of purchasing a starter pack of products for their own use. These products can be resold for a profit, providing the seller or distributor with the opportunity for an income. Support from the parent company is usually available in the form of training and/or promotional material. In a pyramid there is no other form of income possible than by recruiting enough other people, and you are usually alone in that task.

Many participants needed

A large number of participants is the sine qua non for maintaining both systems. In MLM, all participants are by definition customers and users of the product, and are therefore just as indispensable to the survival of the organization as customers are for a traditional company.

Malpractice

The industry has been given a bad name by scum like Ponzi and Madoff, who harmed hundreds of people with sophisticated pyramid schemes before being exposed. Shady people can also parasitize newcomers within MLM by taking advantage of gullibility and inexperience. However, such a lack of integrity is not unique to MLM; There are also plenty of examples of similar malpractice in the financial world and the pharmaceutical industry, to name just a few industries. But that does not mean that every bank, every pharmaceutical company and every MLM company is corrupt. Network marketing is a young industry and still has a lot to learn. A lot of water still needs to pass through the sea to bring the image to a less pyramid-laden level. But with 11 million people involved, this industry has become a serious player that has become an indispensable part of the marketplace.