Network Marketing or Pyramid Scheme?

Many people confuse Network Marketing (or Multi-level Marketing as it’s often called) with Pyramid Schemes. So let’s clarify the difference.

The first thing is that ALL pyramid schemes are illegal and are closed down if they emerge. The one defining feature is that there are NO CUSTOMERS.  In fact there is usually no product or service which is genuinely offered – although there might be a pretence. People make money by recruiting people who pay a sign up fee. Those new recruits do the same and so on. Each level earns commission on downline recruiting so the people at the top get very rich – very quickly. The people at the bottom lose their money to a scheme which has no validity. Victims of pyramid schemes have claimed millions in compensation over the past twenty years.

Multi-level Marketing (MLM) or Network Marketing is a method companies use to distribute products to customers. Instead of putting their products in a shop, the company pays commission to Independent Consultants who share the products through their own networks and sell direct to people they know or meet. If no product is sold, they earn nothing. In the best MLM companies, consultants can progress with no limits on earnings or position purely on their own ability and the work they do. A defining feature is that consultants need to be knowledgeable about their products and be users themselves. To grow the business, the consultants are encouraged to find new distributors who they train up. Some companies pay bonuses based to help train and support new members but the vast majority of money earned by the consultants is commission on product sales.

Direct Sales includes catalogues such as Avon and Yours. Here salespeople sell direct to their friends and people they know, or drop a catalogue and collect orders. They get paid a percentage of the order value.

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