Multilevel Marketing and Pyramid Scheme

Multilevel marketing is a contentious topic that is frequently equated to a pyramid scheme. Although many multilevel selling programs seem lawful, some have been exposed to scrutiny. It happens because when most of the profits go to the top of the company, left little for the remaining employees.

If a company mainly concentrates on hiring instead of sales, it could be a hint that it is a Ponzi scheme. Dozens of people may be involved in these types of scams.

MLM companies have been made illegal in some jurisdictions as a mere variation of the traditional pyramid scheme, including in China. In jurisdictions where MLM companies have not been made illegal, many illegal pyramid schemes attempt to present themselves as MLM businesses. Given that the overwhelming majority of MLM participants cannot realistically make a net profit, let alone a significant net profit, but instead overwhelmingly operate at net losses, some sources have defined all MLM companies as a type of pyramid scheme, even if they have not been made illegal like traditional pyramid schemes through legislative statutes.

MLM companies are designed to make a profit for the owners/shareholders of the company and a few individual participants at the top levels of the MLM pyramid of participants. According to the U.S. Federal Trade Commission (FTC), some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization.

Multilevel marketing is controversial and often compared to pyramid schemes. While some multilevel marketing operations are legal, others have come under investigation. This typically occurs when the majority of the operation’s profits funnel up to the top, leaving little for the rest of its members.

When an organization focuses primarily on recruitment, rather than selling products, this may also signal that it is operating under a pyramid scheme. Sometimes, members of these schemes will number in the hundreds or even thousands.

Multi-level Marketing (MLM) or network marketing, is individuals selling products to the public – often by word of mouth and direct sales. The main idea behind the MLM strategy is to promote a maximum number of distributors for the product and exponentially increase the sales force. The promoters get a commission on the sale of the product as well as compensation for sales their recruits make while Pyramid Schemes are fraudulent schemes, disguised as an MLM strategy. The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

Views: 0