This is a question that we often get asked. And the answer of course is “Definitely Not!” Though MLM and pyramid schemes may seem to share some similarities, there’s a BIG difference which makes MLM legal and pyramiding ILLEGAL.
In pyramid schemes, income is generated solely on the process of recruiting others into the pyramid. Sometimes a product or service of questionable value is involved, but you are most often buying into the right to recruit others and collect money.
This is illegal! Also, in pyramid schemes, those who get in first and are at the top win, while everyone else loses.
In a legitimate MLM company, representatives are paid only on the movement of products or selling of services, not merely recruiting.
Sometimes, there’s also compensation based on the training and managing of your marketing team.
Also, in an MLM company, no matter where you are positioned or when you joined, you can advance to the very highest income levels, and pass those who sponsor you.
Multi Level Marketing is nothing more that a business model that uses independent distributors with a multi level commission payout plan to move products from production to the consumer.
But you ask, “Isn’t the shape of an MLM organization similar to a pyramid?” And the answer to that question is yes, but that is true of all hierarchical organizations. For example, the shape of all normal businesses is in the shape of a pyramid. There is something like a President or CEO, several Vice Presidents, more Division Directors, Group Directors, and finally the workers that make up the bulk of the workforce. Each level down has more people at that level.
The same holds true for governmental departments, and the military. At the top of a governmental department, there is the Secretary, then Deputy Secretaries, Assistant Secretaries, heads of lesser groupings and then the mass of workers.
All these organizations are shaped like a pyramid, so it is not the shape of the organization that makes a difference. It has to do with the actual selling or not selling of products of value. If real products are being sold and consumed, and the movement of these products from production to the end consumer is the primary purpose of the business, then generally the company is a legal entity.
If the primary purpose of the company is to simply recruit more and more members and there is no real product of value being sold, then you have a illegal operation. Chain letters are an example of this kind of activity.
What makes a MLM company different from a traditional retail company is the manner in which the sales force is paid. In traditional retail and direct sales companies, the salesperson is a company employee and earns a commission on only the products he or she sells directly. In MLM companies the salesperson is not an employee of the company, but rather an independent distributor.
The magic of MLM is that independent distributors earn commissions not only for their own efforts, but also on the efforts of other distributors that they recruit into the business. Earning 1% of a hundred peoples efforts is always better than earning 100% on your own efforts, as John Paul Getty noted.
The term “multi level” comes from the process where by one distributor recruits other people to become distributors and the new distributors are placed under them in what is known as a downline. Each distributor is paid a retail commission on the products they sell themselves, and a wholesale commission on the products their downline sells (down to some designated level).
The larger downline a distributor can recruit, the larger will be his or her commissions as they will earn a wholesale override commission on all the products moved by their downline organization down to the designated level. These commissions can add up quickly for distributors with large downlines.
Nevertheless, a controversial new ebook has recently been published that reveals why prospecting and recruiting is actually destroying many MLM businesses… why a business opportunity is literally the last thing you want to be selling… and… how to make money REGARDLESS of whether you sponsor anyone in a MLM business or not! Click here to learn more => The Renegade Network Marketer
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