For some time, there has been an ever present



phobia associated with the term "Multi-level

Marketing" or often called by it's acronym "MLM".

This fear could often be compared to the same

repulsive sensation one feels when in close

proximity to a skunk. Like most fears in our

society today, is this fear of "MLM's" based on

reality, or is the true source of this phobia

simply lost in a dark cloud of ignorance?

MLM's have existed for many years, and going

back decades will often be associated with

organizations such as Amway, Herbalife, and

Watkins, etc. Each person, no matter where they

are on the organizational chain builds their

business through two key functions, marketing

products, and recruiting new distributors (also

referred to as Sales Consultants, Independent

Business Owners, etc.) . These people all do the

same basic functions, sell products, and recruit

new distributors, living off commissions based on

their own as well as the sales of people

recruited in their downline. On close

examination of the business structure, there is a

markedly close comparison to the business

structure of many non-MLM business and franchise

agreements, where royalties are paid based on the

sales of the individual franchise organization to

the franchise owner, as well as the area or

regional manager. In MLMs, there can be a vast

number of levels of distributors receiving

royalties or commissions from one person's sale.

Why then do most people get their back up at the

sound of the term "MLM" or the words "multi-level

marketing"? Truthfully, MLMs have an image

problem that goes back many years. The business

structure of MLM's has been duplicated many times

over. Some have used the business model as a

means to fraudulently make money. Many people

see an MLM and immediately assume they are one in

the same as a Pyramid Scheme, or a lesser known

evil, the Ponzi scheme. MLM's while struggling

with image issues have in recent years made vast

strides in changing "their window dressings".

Today you will see the products of public

relations departments as you hear new businesses

refer to themselves as "home-based business

franchises" or the latest fever to hit the world,

especially on the internet, is the wave of "

affiliate marketing" groups. No matter the name,

MLM's are identified by their business plan and

structure.

So how does one quickly determine if they are

faced with a legitimate MLM or in fact they have

been duped into an illegal Pyramid or Ponzi

Scheme?

In legitimate Multi-level marketing businesses,

people earn commissions from the sale of products

as well as from the enlistment of new

distributors. If the only commissions offered by

the program are for the recruitment of new

distributors, then it's an illegal pyramid scheme.

Products must be a part of the program for the

business to be legitimate. If Distributors are

required to buy more products than they are

likely to sell, then it is considered a Pyramid

or Ponzi Scheme which is illegal in many

countries. It's important to say, that while in

structure MLM's and illegal Pyramids look the

same, and while both can receive monies for

bringing in new recruits, the primary difference

lays in one area. MLM's have a product line

associated with the business which can be

marketed in a variety of ways giving the

individual business consultant the opportunity to

stock the product or simply act as a salesperson

working for a drop shipper. In MLM's the clear

expectation is that the majority of the

commissions earned will be from the marketing of

products, not from the recruitment of or sale of

memberships to new distributors.

When questions of legitimacy have arisen, the

courts, upon examination have applied a simple

determination to separate Pyramids from MLMs.

The determining factor lays in the area of

products sold. Precedent has been set

recognizing what's known as the 70 of

those products first. While some argue, this

means selling to none distributors, some also

allow this to include products Distributors use

themselves as "Demonstrator Products". Both

arguments have been successful in the Courts, and

while one might wonder why the variance, intent

must be considered, or at least somewhat added to

the pot, to determine the final mix of the ruling.

The Federal Trade Commission uses further

determinations to define as to whether or not a

business is in fact a Pyramid Scheme. In the

Commissions determination, Pyramid Schemes are a

non-sustainable business model that involves the

exchange of money primarily for enrolling other

people into the scheme usually without any

product or service being delivered. Pyramid

schemes have existed for well over 100 years.

Closely related to Pyramid Schemes is another

term often heard of, "The Matrix". The Matrix

Scheme uses the same non-sustainable business

model as Pyramids do, but here a person pays to

join a large waiting list of people for a product

which only a few of them can receive.

It's important to note, the Federal Trade

Commission recognizes there to be a difference

between MLM's, Pyramids, and Matrix plans with

MLM's for the most part being legal. While MLM's

are legal, the line between them and their

illegal counterpart is not black and white, but

covered in an array of contrasting shades of grey.

Ponzie Schemes are illegal "private -

unregistered" investment programs which offer

incredibly high returns for short term

investments. These require an incredibly fast

continuing influx of cash flow in order to

survive, therefore using the MLM business model

to accomplish such, and often collapse only to

disappear before they are discovered by the

authorities.

The success and potential for sustainability of

Pyramid, Ponzi and Matrix Schemes all depends on

their ability to disguise their program and

confuse the investor long enough to get them to

hand over their money.

So is the fear of MLM's reality based?

Certainly, the general public has been burned by

many illegal businesses, and while similarities

do exist in the business models, it's important

to realize MLM's are legitimate businesses, and

people do earn real incomes from them. MLM's may

not be for everyone, but they are certainly no

less a serious business than the franchised

coffee shop in your own neighborhood.