Multi-Level Marketing Business, or Pyramid Scheme?
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How to Tell The Difference.
If you’ve been approached recently, out of the blue, by an old friend who just happened to think of you and decided to share a unique business opportunity with you, you’re probably being groomed for investment in an MLM program. Especially if the word “Hun” appears somewhere in the message. (I’ll explain the meaning of this later, for those who are wondering …)
Like gender reveals, cute puppy/kitty photos, Mom’n’babe pics, and a heap of other stuff, mostly of questionable value, MLM offers are threatening to take over our social media networks.
It seems everyone is either involved in a network marketing, referral marketing, MLM, (or whatever else you might call it) scheme or knows someone who is. They all claim to be earning big money. If not, they’re definitely on the brink of huge success. And, of course, they want to share it with you, their long-lost friend. And the first thing you need to know is:
What’s the difference between MLMs and Pyramid scams?
There is a difference, but it’s very subtle. Pyramid schemes, as we all know, are illegal in most places. A pyramid scheme basically relies on recruitments for existing members to make money. Product sales are secondary, and then only as a means of extracting as much money as possible from new “investors”.
Many true pyramid schemes in the past actually didn’t have any tangible products. The “products” sold could be anything from “memberships” like in this scheme, to cheap-and-nasty cosmetics or cleaning products that were never intended to work; just to be “invested in” by new recruits.
MLMs, on the other hand, do have products to promote and sell. Sometimes their products are actually very good. (Amway, Tupperware etc) Sometimes the company actually wants to stay in business long-term and look after its distributors and customers.
Mostly, though, MLMs fall somewhere in between. They have products, they promote and sell these products, but their main focus is on recruitment of new “distributors” (or whatever they choose to call them) The reasoning behind this is fairly simple. They know that the majority of new agents will fail. They know this because it’s a sad fact of the industry. No amount of enthusiasm; no training regime, will turn average John or Jane Doe’s into successful salespeople overnight. Yet that’s what they promise.
When you join an MLM you’ll be asked to buy a starter’s kit of some sort. This can run into hundreds, or in some cases even thousands, of dollars. Before you even start to promote the products you’ll be encouraged to recruit as many of your friends/acquaintances as possible. This is where they make their money. The statistics tell it all. This report, by the US Federal Trade Commission, shows that only around 1% or less (Yes, that’s one percent) of participants in MLMs actually make any money. Most will Lose Money. This 1% is mostly the cohorts of investors who set up the schemes in the first place.
Compare that to the illegal pyramid schemes, where around 10% of participants make at least some money, and you see how dodgy the whole thing is. They raise the point in this FDC document that it makes even gambling look like a better investment practice!
MLMs aren’t new. They have been around for many years, in fact. The earliest examples would include companies like Tupperware (established in the 1940s) Amway (founded 1959 and has been under a cloud after being accused by the FTC of operating a pyramid scheme)
What’s worrying is the fact that most MLMs these days seem to be concentrating on recruitments at the expense of sales, as their marketing plan. If you’re approached by any MLM that mentions recruitment as a major earning factor, run a mile! As a contributor on a Quora blog that I read recently said: MLM = Moms Losing Money.
There’s even a SubReddit here that was set up to expose some of the worst offenders.
It was reading this that I first heard the term “Huns” for those trying to enlist distant relatives or friends into these schemes. Their messages often start with “Hey, Hun” or “Hey, Girl”. I’m not being sexist here, but the majority of those targeted are females, mostly stay-at-home Moms just trying to earn a little extra to get by. The MLM companies provide pre-written message templates for sending to old school friends and the like.
As an aside, I stumbled on this blog by Elle Beau (Obviously a nom-de-plume) while researching this article. Although it’s a lengthy series of posts, it is in segments, so you can read it in bite-sized chunks. She details what she went through after joining the Younique MLM scheme.
So How Can We Tell MLMs From Pyramid Scams?
As I said earlier, the differences are subtle. In a nutshell though, if it seems like you’re going to be expected to recruit others to invest in order to make any money, it’s a Pyramid Scam. That’s just my opinion, of course, but it’s backed up by many other well-informed people worldwide.
My advice? Run a mile, before you get saddled with a mountain of merchandise you’ll probably never get rid of. The only thing you might get rid of (aside from many hundreds of dollars) is your friends!
So What’s the Alternative?
If you are serious about starting an online business, I suggest you read THIS POST, where I discuss several online opportunities. One of them might be just what you’re looking for.
Trust me, there are many ways to work from home these days without selling your soul to a Multi-Level Marketing company. Read the post for yourself.
Have you, or anyone you know, had any experience with an MLM scheme? Do you have anything you’d like to add to the conversation?
Feel free to join in via the Comments Box below. I’d love to hear from you.
Thanks for visiting.