Over the years there have been many multi-level or network marketing companies that have come under intense ridicule for being nothing but glorified and slightly more complex pyramid schemes. Many people feel that pyramid schemes and multi level marketing companies are one and the same. However, this is not the case.
The definition for a pyramid scheme is not so completely cut and dry, meaning there is quite a bit of gray area when evaluating whether or not an MLM company is legitimate. The FTC has approved hundreds of legal MLM companies, although some are definitely more engaged in legitimate business than others. Those that are not engaged in normal, honest business practices are essentially engaged in “scheming.”
What you can expect from these “scheming” companies is a high emphasis on recruiting, and a low emphasis on product sales to outside customers. They usually either have a large fee for becoming a distributor, or they require you to purchase more products than you can really reasonably hope to sell to non-distributors. Wikipedia has the following definition of a pyramid scheme: A pyramid scheme is 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.
The question really is, Are there legitimate multi level marketing companies out there? The answer is yes, there are. The shape of a company's growth is not the primary indicator of whether or not a company is a legitimate company (pyramid shaped) but rather the source of their revenues is.
There are many MLM companies out there that spend millions every year to develop new products to be sold by their distributors to the public. In many of these companies, their distributors are encouraged to talk about the products they have to offer even more than they are encouraged to sign up new distributors. Also, many of these companies only offer commissions for product sales and offer no commissions for signing up new people. (In other blog posts I explain in more detail which companies are the best.)
In summary, some MLM companies are pyramid schemes and should be avoided like the plague because hardly anybody makes any money in them, and they are not sustainable. But, many have legitimate plans for long term growth and help thousands of their distributors achieve a great deal of income. Just make sure you do a lot of research before you good get started, choose wisely before you get involved in something like that.
If you would like to find more information on this subject, the FTC has a lot of information posted on this subject. You can also find more specific information about companies at the Better Business Bureau website, BBB.org. If you have had a problem with such a business in the past, be sure to post a complaint with the Better Business Bureau so the others will know not to associate with that company as well.
