How To Differentiate Between A Pyramid Scheme And A Legal Multi-Level Marketing

How To Differentiate Between A Pyramid Scheme And A Legal Multi-Level Marketing

Amongst different ways of direct selling, multi-level marketing has earned a prominent position in the market. This is because many people are joining a distribution network and thousands are succeeding in earning more apart from their income.


But, if you really have a knack for selling products, then you may fall into the spell of misleading pyramid schemes. Grand promises, a huge amount of money, and little work are some the aspects that might lure you. But, in order to be on the safer side, you should be able to distinguish between legal multi-level marketing and illegal pyramid schemes.

Carry out the research

Before you put your foot down, you should know when the organization was established. Usually, MLM companies have been running for 10 or 20 years. You might come across legitimate startups but you should take care while you are treating such organizations. These could either be pacing ahead with an illegal pyramid scheme which eventually closes down once people succeed in making a decent amount of profit. Moreover, if you are unsure, then you can figure out by using an online domain age checker tool. This would give an idea about the number of years the company has been into the realm of online ppc marketing.

Once you are done with the research, you can seek reviews and opinions related to the company. For fetching opinion directly, you should add words like ‘scam’ or ‘review’ before the keyword phrase. You can always visit the business bureau to check if any party has filed complaints through the years. The trade commission website is also the best place which offers information about companies which have been sued for illegal business practices. Besides, as a word of caution, you shouldn’t get fooled by reviews which have been directly posted by pyramid schemes.


As you move ahead, you should look for the compensation plan. Ideally, an MLM strategy distributes commission to the promoters and the income depending on the sales recruits have accomplished. But, the situation is very different with pyramid schemes. The team usually hides the compensation details and garners the attention by telling people how much they can make after they reach a certain level and qualify for a promotion. Actually, the entry-level people only enjoy average profit made annually.

Apart from everything else, you shouldn’t forget to check for a refund policy. This is would give a fair idea whether you would be a part of a scam. You should expect a full refund when the products are not used in any way. Pyramid schemes often persuade people to buy packages comprising of useless products which cannot be sold off for many reasons. Later when the individual contacts the company, the team emphasizes on the no returns’ policy mentioned in the contract.

As you wind up with the research, find out how you can go up the next level. People who are part of a pyramid scheme move up based on the recruits they sign. But, MLMs offer a promotion based on the sales target and if the person falls within the performance criteria. In case you are promoted without any on paper, then it’s nothing but a pyramid scheme.

Know the business model

MLM companies are usually straightforward in their approach. The sales representatives are recruited depending on the salespeople achieve outside the company. On the contrary, pyramid schemes work upon hiding the business model by luring people with promises and buzzwords. These are confusing many times when compared to the models of MLMs. Most importantly, everything runs recruiting more number of individuals and recruitment process. These might be misinterpreted as a promise to revolutionize the industry and come up with a unique product.


When products are taken into consideration, pyramid schemes never offer items which are useful. The ultimate motive is to add people to the network and make money as the pyramid grows. While these may be nicknamed as ‘miracle cures’, they aren’t but something unfamiliar with a hefty price tag. On the other hand, multi-level marketing companies promote products which are best with respect to quality and can be used without any fear. These have been sold through online portals for a long time span or have been sold through a direct selling business.

Lastly, find out how the individuals are earning money. Quite frequently, pyramid schemes offer a low- profit margin and money is earned only when new members are added to the network. In order to make the decision, you need to observe other criteria. For instance, if the scheme involved selling affordable DVDs then you should realize other signs in addition to the rewards offered to the recruiting members. Besides, if you are returning back with a set of beauty care products, then it’s worth the investment. But, if you are signing an agreement simply for luring other people to work under you, then you should be cautious. This is surely not a viable opportunity but a pyramid scheme which has little chances of success for everyone.

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