Pyramid Scheme or Legitimate MLM Opportunity?

Comment by Poorya Montaseri on January 20, 2010 at 5:26pm

Almost all organizations, irrespective of whether they belong to direct-selling, conventional business or government departments, are pyramidal or hierarchal in structure.

In terms of structure, therefore, there is some similarity between pyramid schemes and all other organizations.
The important distinction between pyramid schemes and other organization, however, is in the operational area. That is to say, does its operations follow a chain letter principle? In terms of income, do members of the organization derive income from the mere act of recruiting? Are there actual sales to end consumers in the company's operations? To join the business, do participants have to pay a high entry fee? And if one wishes to opt out of the business, is there a provision for him to recover his money?


Legitimate Direct Selling Companies
1. The start-up fee for all ethical multi-level selling companies is generally low, primarily to cover training materials, sales aids or demonstration kits. Pyramid schemes often disguise high entry fees as part of the price charged for required purchases of training, product inventory etc.

Pyramid Schemes
Pyramid schemes make virtually all their profits from recruiting.

Legitimate Direct Selling Companies
2. Such companies sell a wide range of quality products to the general public. The bulk of the sales are on repeat sales form satisfied customers. This is only possible because these companies spend millions on research and development to develop quality products.

Pyramid Schemes
Pyramid schemes are frequently disguised to appear as legitimate direct selling companies. Such schemes are not interested in marketing these products which are of dubious value. Instead, money is made in typical pyramid fashion, from recruiting, with new distributors being pushed to purchase high cost/large inventory when they sign up.

Legitimate Direct Selling Companies
3. Many companies have a 100 percent money-back guarantee. Dissatisfied users (and there are relatively few) could exchange the products back for money or for an equivalent amount in other products.

Pyramid Schemes
Pyramid schemes will not buy back unsold inventory. Such schemes will collapse very quickly if there is this condition for re-purchase of goods.

Legitimate Direct Selling Companies
4. These companies are interested in long-term business. In every country that they operate, this criterion is important because the companies have an obligation to their distributors who are small businessmen in their own rights.

Pyramid Schemes
Pyramid schemes are get-rich quick schemes. The nature of the pyramids, in which large numbers of people at the bottom of the pyramid pay money to a few people at the top, clearly explains why the scheme cannot sustain itself for long.

Legitimate Direct Selling Companies
5. Recognition of achievement is based on efforts. This means that a distributor's income is commensurate with the efforts he/she puts into the business.

Pyramid Schemes
Position could be purchased.

Legitimate Direct Selling Companies
6. Established companies depend on selling to customers quality products which offer value for money in order to establish a market.

Pyramid Schemes
Pyramid schemes are not concerned with repeat sales to users of the products. Profits are made on volume sales to new recruits who buy the products not because they are useful or attractively priced, but because they must buy them to participate in the scheme. As a result, new participants are stuck with products that are way below the market value in relation to the high entry fees paid by them. Should the pyramid scheme collapse, there is no way for the participants to recover their "investments".

Legitimate Direct Selling Companies
7. These companies build up networks of independent distributors to sell products.

Pyramid Schemes

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