Caution! Multi-Level-Marketing (MLM) VS Get-Rich-Quick Pyramid Scheme

Most of the people does not have good impression towards Multi-Level Marketing (MLM) companies, mainly due to the existence of pyramid scheme that works similarly with multi-level marketing. However, not many can clearly differentiate between a legitimate MLM company and a Get-Rich-Quick Pyramid Scheme. Here are some of the quick and dirty tricks that you can use to differentiate between a legit MLM company and a get-rich-quick scheme.

Sustainable business model

The most important difference between MLM and get-rich-quick pyramid scheme is that a legit MLM will have a real and sustainable business model, while the pyramid scheme doesn’t. What do I mean by a real and sustainable business model? Basically it is just the way that a company can repeatedly create and sell their product or services to customers and doing it profitably. Two important keywords here are ‘repeatedly’ and ‘profit’, companies can only survive if it generates sufficient profit constantly to support its operation and growth.

How can one tell if a company does not have a sustainable business model?

• It should have good products that priced reasonably so that the distributors can earn a healthy but not excessive commission from selling the product,
• The company must invest in research and development of its future product to ensure its competitiveness,
• Last and most importantly, the profits must come from selling the product itself, not by the entry fee of the new members.

Ask as many questions as you can think about how the company makes money. Legit MLM companies are very open to such questions as they see it as an opportunity to build trust with you, while get-rich-quick scheme will not like it. They either vaguely explain it or avoiding the question totally, some may even tell you that they will only answer the questions AFTER you join them. No legit MLM company will try to avoid answering your questions BEFORE you decided to join them. Period.

Generate profit from sales of products to customers NOT distributors

For a legit MLM company, they must be able to create value for their product so that customers willing to pay for it. Distributors are just the people that help them to convince the customers. If success, distributors will be paid a portion of the sales as a reward. If a company is forcing the distributor to pay in the process of selling the product, this is a huge red flag that you should be wary of.

For pyramid scheme, they usually don’t have a product or price a decent product at very high price that it is almost impossible for distributors to sell the product to customers repeatedly. Their purpose is to gather as much money as possible in the shortest period of time and run away. But how and where do they get the money from? They will usually ask a large sum of entry fee from the distributors and then share a portion of the entry fee of any new entrants that that distributor had recruited. In other words, pyramid scheme owners make money from its members and distributors, NOT from the products. 

Anyone can earn a decent living by working hard and selling products for MLM

Legit MLM will have a well-designed marketing plan that allows anyone who works hard to sell their product will be able to make a decent living. It may not be easy, you may need to learn all about the product knowledge, selling skills, cold calling and many more. In short, you will need to work hard, for the money to come, but good MLM will make sure that it is worth your while.

In most cases, when a sale happens, the person who closes the deal will earn the most of the commission, not those who recruited them. By ensuring that the person who closes the deal takes most of the commissions encourage more sales for the company. If any company allows the recruiter to earn more than the guy who closes the deal, very soon they will find out their sales deteriorated and their business won’t be sustainable. 

Most Get-Rich-Quick pyramid scheme won’t last for more than 3 years, because they don’t have a real business model that generate profit, instead they are relying on bringing more new members and using their money to support the business. Usually they provide very high return with very little work from your side. However, the reality is only very few of those stay on top of pyramid will grab most of the money or profit (if any) while majority will lose everything.

Conclusion

Anyone who tells you that you don’t need to work hard, just hand in your money, and ask more people to hand in their money to the company, then you will be rich in no time, is almost guaranteed of not being totally honest to you.

Multi-level marketing is just one of the many type of business model used by modern companies, it is built on solid business foundation and marketing plan. It may not be easy, but it can be very rewarding journey for you.