1 October 2019
What are the Differences Between Network Marketing and Pyramid Schemes?
Network marketing is not a new practice, but it is finding renewed recognition with the rise in popularity of social media, online blogging, and an increasing number of people getting a side hustle and finding opportunities to start at-home businesses. However, because of the common misconceptions and myths surrounding network marketing and its confusion it with pyramid schemes, network marketing has a negative reputation.
Despite being a legitimate, multi-billion-dollar industry with plenty of success stories, many people equate network marketing with well-known pyramid schemes. There are similarities in structure, mostly because pyramid schemes tend to disguise themselves as network marketing strategies in order to make people think they are legitimate. Network marketing professionals like Toni Vans are a true testament to the legitimacy and success of network marketing, because they believe anyone can be successful as a network manager as long as they do it the right way.
What is network marketing?
Network marketing, or multi-level marketing (MLM) in its purest form, works by having an individual sell a product to their network or, in the case of online MLM companies, driving traffic to the company’s website. The individual then tries to increase the sales force by recruiting other people to sell the product or drive web traffic as well, with the incentive that the person recruiting will get compensation for their recruit’s sales as well as their own. This creates the multi-level compensation plan that is widely recognized.
What makes network marketing different from a pyramid scheme?
MLM companies are legitimate companies offering legitimate products to their customer base via their networking sales force. What makes a pyramid scheme different and illegitimate is mainly the fact that pyramid schemes are fraudulent systems disguised as MLM systems.
Pyramid schemes often promise incredibly high, too-good-to-be-true returns in a short period of time, where you don’t really have to do anything in order to achieve them. The only “work” that’s required is paying large fees or paying for product up front and convincing others to do the same. The only people who end up making money in pyramid schemes are those who are at the top – there are no downlines in pyramid schemes. Legitimate and successful MLM companies allow for two or more downlines to be created when you bring in others to work under you, therefore allowing you to earn money yourself as well as through the new recruits you bring in, assuming they make sales and create their own downlines too.
Furthermore, the products that exist for pyramid schemes are fake, useless, or sometimes even harmful to your health. Some pyramid schemes don’t even have a product to sell that actually exists. There is often no real product to sell, but there are fees involved with buying product and usually in large quantities up front. People who fall into the trap and get scammed by illegitimate pyramid schemes may never even see any product delivered to them at all.
How can you protect yourself?
If you’re interested in diving into the world of MLM, make sure you do your research on how credible and legitimate the company is before committing and investing any time or money. Check the company’s track record by doing an Internet search of the company’s name with words like ‘scam,’ ‘review,’ ‘fake,’ or ‘complaint’ after it to see if anything incriminating pops up. A big red flag is also being pressured into paying or signing a contract during an initial meeting, so never agree to any sort of payment or contract before doing your due diligence and carefully thinking over your decision.