MLM or Pyramid Scheme? An Acid Test

Discussion in 'Network/Multi-level Marketing' started by Humerox, Feb 19, 2006.

  1. Humerox

    Humerox New Member

    Although there is some good advice on this board about scams, I thought the following advice would make it easy to identify the difference between a real opportunity and a scam. Good luck!

    1) Are you required to "invest" a large amount of money up front to become a distributor?

    This investment request may be disguised as an inventory charge. Legitimate MLM businesses do NOT require large start up costs.

    2) If you do have to pay for inventory, will the company buy back unsold inventory?

    Legitimate MLM companies will offer and stick to inventory buy-backs for at least 80% of what you paid.

    3) Is there any mention of or attention paid to a market for the product or service?

    MLM depends on establishing a market for the company's products.
    If the company doesn't seem to have any interest in the consumer demand for its products, don't sign up.

    4) Is there more emphasis on recruitment than on selling the product or service?

    Remember, the difference between MLM and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, run. Run fast, and run hard.

    The next question will help you determine what the focus of the company is:

    5) Is the plan designed so that you make more money by recruiting new members rather than through sales?

    Some MLM opportunities pay a commission on recruiting new members, but sales, either by you or through your downline, is where you make your money. MLM and pyramid schemes are diametrically different only in this regard, and that's why they are so easily confused.

    As always, when you're investigating a potential business opportunity, you'll want to gather all the information you can about the MLM company's products and operations.

    Take a good hard look at the opportunity. If becoming a millionaire was easy, we'd all be millionaires. The old saying "if it looks too good to be true, it is" is a good starting point.
  2. Hey Humerox,

    Very good advice.

    Hopefully, people will READ and take HEED...

  3. WhitePhoenix

    WhitePhoenix New Member


    Your post is one of the most informative I've seen in that you've managed to focus on the finer points of what we should all investigate before we jump into something.

    Unfortunately, it's easy to get caught up in the 'make money this way' ideas that float around out there, and sometimes, unlike what Joe has said, we may read, but we don't heed...
  4. coreyjroman

    coreyjroman Silver Member

    Good posts! A pyramid scheme by definition is the exchange of money or the promise of monies without the offering or sale of a tangible product or service. The reason they call it a pyramid is because when looking closely at the definition there is always a person or group of people at the top who benefit the most from these exchanges. Also when the law made these opportunities illegal it was not because people were getting ripped off but because the government was kept out of the loop for taxation. No products to tax and cash exchanges were "non-existant" so they never made it to the books. Then some years later these "schemers" discovered another loop hole created from a supreme court ruling that stated that membership in organizations that provide "any" benefit to it's members was considered a legitimate product or service... and so... the government earns it bucks and the "pyramid" scheme was given new life.
  5. dimp

    dimp New Member

    in pyramid scheme money comes from downline. if upper line collapses then system collapses. that is why it is called pyramid
  6. martinbradstreet

    martinbradstreet New Member

    Hey everyone,

    I also thought the definition of a pyramid scheme is what Corey wrote. Most MLM come from the downline?

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