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The Difference Between Multi-Level Marketing Businesses and Pyramid Schemes

MLM or Pyramid Scheme

Are you looking for a work-from-home option or just another income stream? You might notice friends posting about products like organic cleaning solutions, self-tanner, or make-up. Those are usually all categorized as multi-level marketing (MLM) businesses and involve selling products that other friends might want to start selling, too. The problem is what you might think is one of these legitimate income streams could be a pyramid scheme in disguise. The key is to know the difference between a MLM and a fraudulent pyramid scheme.

What’s the difference?

Multi-level marketing businesses sell their product through person-to-person sales. If you join an MLM, you’re generally referred to as a “distributor,” “participant,” or “contractor.” They promise you financial success through selling their products to customers not involved in an MLM, or by recruiting and ultimately getting commissions based off their sales results. However, MLMs do pay you based solely off your sales to customers, without having to have recruits or a “network.” Although there is talk of financial success when entering an MLM, most actually make little-to-no money. In some cases, what may seem to be a legitimate MLM turns out to be an illegal Pyramid Scheme.

Pyramid schemes ask you to invest with the promise of a huge return if you recruit more people. These recruits have to do the same. Eventually there are multiple levels of people, and it’s mathematically impossible to recoup their investment. The people who started the scheme profit, and most others lose money. These schemes are fraudulent and can cost you, and even your friends and family, time and money you can’t get back. If you think you’ve been involved in a pyramid scheme, you can report it here.

On the surface, it can be hard to tell the difference between a legitimate MLM business and a pyramid scheme. That’s because they’re both built on the business model of “multiple levels” of distributors and recruits. If you’re ever unsure about the legitimacy of an online business, you should look into the cost to become a distributor. If there’s a high sign-up fee, and the posts rarely mention products, it’s most likely a pyramid scheme.