The Difference Between MLMs and Pyramid Schemes and Why We Don’t Endorse Either

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When starting out or even branching out in your internet marketing career, you need to pick a style of marketing to focus on.

There are numerous of these, such as email marketing, content marketing, PPC marketing and so on.

However there are two methods of making money online that tend to kick up a stink, and cause a divide amongst marketers: Pyramid Schemes and MLM (Multi Level Marketing) Schemes.

Feels Like We’re Splitting Hairs

The first thing you need to know about these two types of money making ventures, is that they are virtually the same, but have a couple of differences that changes how some people and the law looks at them.

Let’s look at each one individually

Pyramid Schemes

Most people will have heard of Pyramid Schemes, as they tend to be well publicised in the media.

The essence of a Pyramid Scheme is that you join the scheme, generally paying a fee to do so, and then recruit other people to join. These recruits are positioned below you in the scheme and their recruits below them and so on.

Think of it like a family tree, where you have one couple at the top (you) and their children below them (your recruits and their children below them (the people your recruits have recruited), and so on fanning on for numerous generations.

Each time you recruit someone, you get a commission. Each time one of your recruits gets someone else to sign up you still get a commission (albeit smaller).

The size and depth of the commission structure differs from one Pyramid Scheme to another, but on average it goes about 5 deep.

There is no selling involved in a Pyramid Scheme, you literally just need to get people to sign up and pay their fee, and lo and behold both of you will be making money from virtually nothing!

If you have ever dabbled in online marketing and been burnt, you will know that there is no way to make money from nothing. It requires hard work and dedication.

The issue with this is that there Is no money being made, so people are being paid by the fees of the new recruits.

Pyramid Scheme

This is not sustainable, and eventually the Pyramid Scheme will collapse, but not before the one at the very top of the scheme (and that is not going to be you) has made a fortune off of the fees of their recruits and their recruits sign ups.

This is the very reason why Pyramid Schemes are illegal.

MLM Schemes

Multi Level Marketing Schemes are also called Network Marketing Schemes.

They differ from Pyramid Schemes in that there is usually a product (often physical) that the person can sell and make money off.

A person can also sign up other people to sell products, and receive a small amount of commission off of them too. This is the main similarity with Pyramid Schemes.

MLM’s are legal, mainly due to a 1979 Federal Trade Commission ruling that found the company Amway to not be a Pyramid Scheme.

This ruling opened the floodgates for other business (legitimate and otherwise) to jump aboard the MLM bandwagon.

In theory it seems like a win-win situation for both company and salesperson. The company gets a large amount of grassroots, word of mouth advertising and the salesperson makes a commission.

If done right then that can certainly be the case.

Multi Level Marketing

The Blurred Line of Legality

Often though, MLM’s are borderline Pyramid Schemes. Here are some key factors that will turn a legal business idea into something that is most likely going to help you lose money and get the FTC interested:

  • The MLM emphasis recruiting users more than selling products
  • The MLM’s products are expensive but poor quality
  • The MLM requires you to make large up front purchases of its products
  • The only way to make money is to recruit people

These types of MLM’s are flouting the law and the vast majority of people will not make money through them. In fact some people are likely to lose money (imagine having a garage full of expensive products that you cannot sell…).

How to spot a bad choice

These simple points will help you decide whether the scheme you are looking at is one to avoid or not:

  • Being required to pay a fee to join
  • Being pressured to recruit more people
  • Expensive and poor quality products
  • Only being sold or required to sell a list of sales leads
  • Sales pitches based on what the salesman has earned, with no provable earnings proof
  • Numerous levels of commissions (anything over 4 or 5)

Do I recommend MLM’s?

No. Generally speaking, while MLM Schemes are legal, the vast majority of people who join one will LOSE money. This is either due to low commissions or a pyramid style structure.

I’ve Tried That has a very large reach online with a huge readership. At any point, we could pick any MLM to endorse and make an absolute killing on getting people to sign up. However, our earnings would come from those who would lose money due to not having anywhere near the reach that way have. Profiting off of others failures and hardships is not what we’re about.

The Bottom Line

If it looks too good to be true, then it is and should be avoided.

If you still want to look into joining a scheme then make sure you do your homework first:

  • Talk to members current and past,
  • Search for news reports on the company,
  • Check out the competitions products to see if they are cheaper/higher quality
  • Find and study reviews of the products themselves
  • Make sure you don’t have to spend a lot of money
  • Read the small print!

There are many alternative ways to make money online that do not involve you having to pay an expensive membership fee and certainly don’t involve having to buy products up front.

There's only ONE program I really recommend. It helped me turn my 'hobby' into a $6,000+ per month money making machine. Click here for the exact formula I followed.

Photo credit by Bruno Girin

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