There is a great deal of confusion about multi-level marketing scams. Perhaps the most important fact to point out right from the beginning is that multi level marketing scams do not exist. In fact, multi level marketing companies are legal and legitimate businesses. Synonyms for multi level marketing are network marketing and MLM. But no matter how you say it, multi level marketing is on the up and up. When you think “multi level marketing scam”, what you are really referring to are pyramid or Ponzi scams. It’s pretty easy to see why they are confused so don’t feel bad.
Multi level marketing is based on a pyramid hierarchy (as are many other types of traditional business models) just as pyramid and Ponzi scams. Another similarity between the multi level marketing and pyramid/Ponzi schemes is that you usually have to pay an initial start-up fee. When I say “usually”, I am only refering to multi level marketing businesses because some of these don’t actually require an initial start-up fee while ALL pyramid and Ponzi schemes require an initial investment. You’ll see why in a minute.
Yet another similarity between the legitimate MLM and the illegitimate pyramid/Ponzi scheme is that in both, you earn commissions on the people that you end up recruiting into your business. But pay attention because here is where you can really tell if a business falls under the multi level marketing category or the pyramid/Ponzi scheme category: While your initial fee in the network marketing also buys you some of the products or services that the company sells, the initial fee in pyramid or Ponzi schemes doesn’t get you anywhere but “in” the business.
With pyramid/Ponzi schemes, you are basically just paying to be a member of this group which offers nothing but the opportunity for you to make money off other people who come into the same group. In legitimate multi level marketing businesses, you can also earn from recruiting others into the business. However, you are recruiting others into the business to sell the products or services that the company offers.
Network Marketing (or you may say MLM or multi level marketing) businesses have undergone quite a bit of scrutiny due to their similarity to Ponzi and pyramid schemes. In fact, when these illegal businesses were first born, they did quite a bit of damage before the FTC was able to catch up with them. And MLMs have suffered also because of the mistaken connection between the two. However, the good news is that strict control by the FTC has pretty much wiped away pyramid and Ponzi scams. So remember, if you do see a business that seems to be offering commissions without offering any type of product or service, make sure you check it out with the FTC. And most of all, remember. . .multi level marketing scams do not exist.
/Carsten
