Avoiding Investment Frauds: Knowing the Differences between Pyramid Scams and MLM - By: dylanmay

In the world of business, getting left behind can be a pitfall for any entrepreneur. As more and more entrepreneurs wish to rise and earn income, different marketing strategies have emerged. One of the most popular marketing and sales strategies is Multilevel Marketing (MLM). A simple business model that started out in the 90s, MLM has become one of the most widely used strategies in income-generating affairs. Although often confused with the pyramid and Ponzi schemes, MLM actually allows the members to sell products and earn commissions. Listed below are some facts that differentiate MLM from investment frauds like the pyramid and Ponzi schemes.

MLM companies follow a certain structure when recruiting members. Those who were able to invite a person into MLM are called sponsors. The new recruits are then called distributors. Unlike in pyramid scams, the new distributors only need to pay a sign-up fee or purchase products that correspond to the amount just once. Both parties, the sponsor and distributor, also need to sign an agreement prior to the membership. Once a person becomes a distributor, he can then invite other people to join the system and become sponsors.

Another difference between pyramid scams and MLM is the process of gaining income. In pyramid scams, the recruiter will ask the new member for a large upfront fee and guarantee it will be doubled after some time. In MLM, the upfront fee is not too high and can also be converted to goods provided by the company. The distributor can sell the goods and add a commission on the products to get his money back.

What's even better is that distributors can earn income passively with MLM business opportunities. For instance, a sponsor with a line of distributors can gain commission from those below him. This structure is called the downline structure. It basically means that those at the top of the hierarchy—those who've been members for a long time—are more likely to gain higher income.

Aside from these, distributors are also more likely to improve their marketing skills compared to pyramid members. MLM business opportunities, seminars, and trainings are provided to the distributors to enhance their salesmanship skills. Apart from that, distributors and sponsors work together, and the sponsors guide the new recruits in the business. These business opportunities and trainings are not present in the pyramid and Ponzi scams.

Pyramid and Ponzi schemes have high rates of collapse, leaving its members in disarray. To avoid being caught up in these situations, people should check the credibility of the recruiter. For instance, a person should check the success rate of the various MLM business opportunities they are interested in before committing to one.

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