How many times have you heard the statement “MLM is a pyramid scheme” as a response when attempting to attract people to your business model? Let's take a moment and confirm some of the facts. So:
2. It is quite likely that each and every one of us has, at some point, encountered proposals for a business opportunity or offers of products for purchase from network marketing firms.
3. Newspapers, magazines, and other forms of mass media have traditionally given a negative assessment of network marketing, equating MLM companies to pyramid schemes.
What is the reality?
Let's be perfectly clear: network marketing companies are fundamentally different from financial pyramid schemes.
1. Network marketing firms market an actual product or service – that is, you can actually touch or experience the “thing” that you purchase.
2. A “distributor” is usually an end consumer of products/services that he or she has tried and liked – and they have a financial interest in promoting its further sales to other people.
3. Pyramid schemes, on the other hand, do not offer anything tangible.
What is a distributor?
1. A distributor is the key link in the system of MLM. For a very reasonable fee, he or she acquires the right to:
- use the firm’s trademark to promote products and/or services;
- earn a commission according to the firm’s pre-established marketing plan.
2. She/he is an independent entrepreneur and his/her earning potential depends on sales volume – which represents purchases made by a group formed by the original distributor (otherwise known as the downline).
3. His/her salary does not depend on the number of "recruits" and their respective financial contributions to the company.
1. Through MLM, the opportunity for unlimited earnings exists for everyone, even those just starting out.
2. In a pyramid scheme, only the very top of the organization reaps the financial gains.
3. A stable and considerable income is provided by a large (several thousand people) marketing network.
What is the reality?
1. Creating a sizeable and active marketing network is not easy.
2. When a network is created, it must be maintained in working order.
What should you be suspicious of?
Promises of fast and stable income without effort. This may indicate that:
- the person offering you this business model is less than qualified to do so;
- there are possible indicators of fraud.
How is the MLM business organized?
1. Products often sold through the MLM model include:
- dietary products;
2. Effectiveness of product sales is achieved not by the company itself, but through a network of independent distributors – each of whom has created his/her own infrastructure.
3. Up to 70% of gross sales is then distributed to the sales agent in the form of commissions and bonuses as defined by the company’s marketing plan.
4. Employing MLM methods for product promotion allows the company to save money:
- on advertising;
- on overhead associated with brick and mortar stores;
- on costs associated with delivery of the goods
5. Because their methodology of profit distribution differs from that of traditional retailers and wholesalers, network marketing companies direct a large portion of their income towards:
- product research and development;
- state-of-the-art technology in production of products;
- cultivation of natural ingredients for their products in their own fields;
- creation and support of their own research laboratories;
What is the result of this?
All of these things taken together allows MLM companies several advantages, such as being able to:
1. Produce products of the highest quality – ones that have a therapeutic effect without adverse side effects and potency allowing for economical usage.
2. Provide a guarantee of quality, which usually includes full refunds for products deemed unsatisfactory by the consumer.
If considering involvement with MLM, what should you expect?
1. Millions of people have achieved success in the network marketing business – but there are also many who have been disappointed.
2. In my experience, their disappointment may have been due to lack of initiative, absence of quality training, or a habitually negative outlook on life.
What do opponents of the MLM business say?
The most frequent statements involve supposed similarity of MLM to that of a pyramid scheme and that it promotes fraudulent and unsavory activities.
What are actual indicators of a pyramid scheme?
Some of the indications that the venture may be a financial pyramid scheme include:
- absence of goods that are in high demand in the free market;
- a large entry fee;
- payments or other benefits in exchange for attracting new recruits/members;
- lack of guaranteed refund of the initial investment upon the distributor’s decision to terminate involvement with the company.
What should proper MLM companies possess?
1. The possibility of cashless payment for their goods and/or services.
2. Marketing Plan.
3. Transparency regarding its financial operations and the number of distributors.
4. Longstanding existence of the company trademark.
What you need to remember:
1. When choosing which MLM company to get involved with, be sure to clarify the aforementioned details.
2. Products or services being promoted by the company should be everyday rather than one-time use, as well as produced by the company itself and have the aforementioned quality guarantees.
1. Network marketing benefits not only those individuals who decided to devote themselves to this type of activity, but also society in general.
2. In the context of financial uncertainty, the MLM business model showed a high resilience to economic crises.
3. Countless people who have lost their jobs in a variety of different professions have found their new calling with MLM companies.
4. Network marketing provides numerous opportunities for ANYONE to be able to showcase their initiative solve their financial problems as well as raise self-esteem and increase self-confidence.
So, after all that, can you still compare MLM to a pyramid scheme?