MLMs and Network Marketing: Legit or Pyramid Scheme?
/If you have a friend in the direct sales space, chances are, they’ve tried to recruit you into their business. And, while, yes, this can be off-putting or annoying, this does not mean that your friend is involved in a pyramid scheme. Before we can truly know if MLMs and Network Marketing are legit, we have to take a closer look at them, how they are made up, and whether products are exchanged for money. So, if you have a friend who really loves her lashes (like I do) and wants you to love them too - or to join her business - read this before you accuse her of being involved in a pyramid scheme.
Believe it or not, MLM companies, direct sales companies, and network marketing companies are all entities that heavily monitored by the FTC. MLM (multi-level marketing) companies sell their products or services through person-to-person sales. That means they’re selling directly to other people, maybe from their home, a customer’s home, or online.
MLM COMPANIES
Paid based on your sales and your recruits’ sales: exchange of product for money
According to the FTC, if you join an MLM program, the company may refer to you as an independent “distributor,” “participant,” or “contractor.” Most MLMs say you can make money two ways:
by selling the MLM’s products yourself to “retail” customers who are not involved in the MLM
by recruiting new distributors and earning commissions based on what they buy and their sales to retail customers
Your recruits, the people they recruit, and so on, become your sales network, or “downline.” If the MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.
PYRAMID SCHEMES
Paid based on how many people you recruit, not sales: Not much (if any) product is exchanged
The promoters of a pyramid scheme may try to recruit you with pitches about what you’ll earn. They may say you can change your life — quit your job and even get rich — by selling the company’s products. That’s a lie. Your income would be based mostly on how many people you recruit, not how much product you sell. Pyramid schemes are set up to encourage everyone to keep recruiting people to keep a constant stream of new distributors — and their money — flowing into the business.
Often in a pyramid scheme, you’ll be encouraged or even required to buy a certain amount of product at regular intervals, even if you already have more inventory than you can use or sell.
THE REAL PYRAMID SCHEME THAT NO ONE IS TALKING ABOUT
The 9-5: Paid based on number of hours exchanged for money, with small raises and an occasional bonus - if you’re lucky
Think about the structure of the typical business. You have one person, usually a CEO or Director of Operations at the top. Then you’ll have the President who oversees the Middle Management. Middle Management oversees the Team Leaders who support the teams of people actually doing all the work.
If you were to draw this out on paper, guess what you’d have! That’s right! A PYRAMID!!
In this organization, only one person is at the top, and the others have very limited ability to ever hold that (usually higher paying) position. And you definitely wouldn’t see one of the “workers” just skip right up to being the director…it would have to be earned, he/she would have to be qualified and would have to serve his/or time. Right??
Well, what I love about the Network Marketing Industry is…not only is there room for everyone at the top, but anyone, who is willing to put in the work, can get to the top. Now, don’t misunderstand me. That doesn’t mean it would be easy or that it would happen overnight. But let me put it this way. If you enter the Network Marketing space, and you totally rock your business — there’s no interview to get to the top to tell you that you don’t qualify because you don’t have your degree, or because you don’t have enough experience, or because you don’t fit in to their mold. There’s no gatekeeper!
So, while direct sales is not for everyone, it is a legit (and legal) form of income. So, instead of worrying or complaining about the friend who loves their product or their business, cheer them on! They’re brave enough to dream . . . and brave enough to challenge the 9-5 pyramid structure, even knowing some will mock them!
