Can We Really Trust Network Marketers?

What is it about multi level and network marketing that makes people automatically think 'SCAM'?

The best reason to start an organization is to make meaning; to create a product or service to make the world a better place. ~Guy Kawasaki

Multi Level Marketing Or Pyramid Scheme

If you think multi level marketing and pyramid scheme are one and the same thing, you're not alone.  Unfortunately the terms 'MLM' (multi level marketing and also referred to as network marketing, direct selling, referral marketing etc) and 'down line' conjure up a negative image with many people because they associate them with illegal pyramid schemes and scams.  Nothing could be further from the truth and if you know what to look for you can easily tell which is which.  

A Pyramid Scheme requires you to pay a fee to 'start earning'.  Unfortunately though that is about all a PS consists of - the 'income' is solely derived from those 'join up fees' and the whole system depends on every paying sign up generating their own paying sign ups and so on.  Eventually the new sign ups stop or taper right off and so then does the income which brings the whole pyramid crashing down.

A good MLM system on the other hand is free or very low cost to start and will offer you earnings based on what you sell.  They have a product, or line of products, that you sell to earn commissions on.  You build up a team of affiliates who also sell products that  you, and they, earn commissions on.  In other words, it doesn't rely on income from 'joining fees' and even if you never build up a team of affiliates (a downline) you can still make a comfortable living by selling the products and earning commission.

So, in a nutshell, a Pyramid Scheme requires you to pay a fee to "start earning" and they usually have no product or service whilst a (good) Multi Level Marketing system will offer you an income based on what you sell.  This is an important distinction.

Pyramid Schemes:

• Pyramid schemes are non-sustainable; they involve the exchange of money generally by way of a sign up fee and usually have no product or service.  
• Pyramid schemes are highly ILLEGAL.  
• In a pyramid scheme the main money earners are those right at the top of pyramid whilst those at the bottom can only make money by signing up new members. 
• Because there is no product or service involved, the people at the bottom earn only minimal amounts and then only if they can sign anyone on but eventually this becomes impossible.

Common indicators of a Pyramid Scheme:

• the 'join now by paying a one time joining fee' and then just sit back and 'get rich quickly' promise in return. As stated by the US Securities and Exchange Commission - “[t]he 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. The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors.” 
• You usually have to join up and pay up before you can get any information about the company or its 'products'
• There is invariably NO PRODUCT or service; if there is it is usually over priced.  Regrettably you often don't find this out until AFTER you fork out money by joining.
• As already mentioned, most or all of the income is derived from joining or sign up fees
• The company has to repeatedly reassure you that it is legal and genuine.

 Multi Level Marketing:

Whilst the concept and structure of MLM may be similar to a Pyramid Scheme, the similarities end there.  Unfortunately this is what tars MLM with the same brush in most people's minds.  There are however several very important differences:

• MLM systems are 100% legal even though they are structured like a Pyramid Scheme
• MLM systems have physical products available for sale 
• Information about products and the company are readily available PRIOR to sign up
• MLM system members have the opportunity to earn by selling these products without having to sign up new members
• Members on lower levels of a MLM system have the capacity to earn MORE than those in levels above them.
• Entry to a MLM system is often either FREE or very low cost because the system relies on sale of products, NOT sign up income

Common indicators of a MLM System:

• Minimal, or no, joining fee
• Information about the company and its products and services are readily available before you join
• Members on any level of the structure can earn money without signing up new members
• The primary source of income for members comes from selling the company's products and services, not from joining fees
• The entire structure is set up to ensure that all members have an equal chance of making the same types of incomes and their income is directly proportionate on ability and time invested in marketing
• A MLM system usually requires that you invest either money or time (preferably both if available) to be successful.  They do NOT promise wealth without effort.

BOTTOM LINE - any company that offers an income for very little investment (either time or money) is generally too good to be true.  And, if it sounds too good to be true, it usually is. 

So why then is this pyramid shaped business model used?

Simple answer is that it reduces the cost of advertising.  Word of mouth and personal recommendations are a very cheap and ultra successful way of advertising.  Instead of spending hundreds of thousands on marketing campaigns, MLM companies reward their members by way of incentives (cash, points, free products etc) for spreading the word.

Examples of legitimate Multi-Level Marketing Companies:

There are hundreds of perfectly legitimate MLM companies operating around the world today.  A few that spring to mind include:

• Tupperware
• Avon
• Mary Kay
• Neways
• Nu Skin
• Amway
• Juice Plus
• Herbalife
• Forever Living
• 4Life

My Tips About Multi Level and Network Marketing:

• Do a cost / benefit analysis whenever you come across a MLM company that looks inviting and you think you might like to give it a go
• Probable costs vs potential benefits - weigh these up carefully and IF the benefits outweigh the costs then by all means sign-up if you want to and see how you go making money.  Ultimately it's your decision though
• Remember that many Pyramid Schemes are very cleverly hidden for obvious reasons.  If you can't decide, even with the guidelines I've listed above, whether something is legitimate or not, chances are it possibly isn't so err on the side of caution and steer clear of it.

Whilst MLM and pyramid schemes do share a lot of the same features they are poles apart when it comes to authenticity, ethics and legitimacy.