“Isn’t MLM the Same as a Pyramid Scheme?”

That’s an all too common question MLMers get asked and MLMer-wanna-be’s ask.

Before we can answer that question, we have to first capture the spirit behind that question and define the term, “pyramid scheme”.

When you look up the definition, “a pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered.”

So if we go by strictly semantics, then no, MLM models are NOT pyramid schemes – they are two distinct structures. Pyramid schemes are non-sustainable and illegal while… well, MLMs are perfectly legal. The spirit of MLMs are such that you make money off of selling products and NOT by just bringing people into the company.

So technically, MLMs are NOT pyramid schemes.

So why do folks get so confused about these two? It simply has to do with the way they are structured. They both look like pyramids!

MLM Pyramid

They both rely on their distributors recruiting more people and they both rely on the salespitch that “all you need to do is find two people to join you and they each find two…” and so on.

But then again, if you look at ANY organization with a leader, you’ll see a similar “pyramid like” structure – any corporation (CEO at the top, presidents, vice presidents, regional managers, managers, different levels of employees), the military, our school system, our government, heck, even Christianity!

However, a pyramid scheme relies on its recruiters finding people to join and money is exchanged but NO PRODUCT IS. So the payout simply has to do with someone “joining the umm… company”.
MLMs, by law and by definition, only pays out to its distributors on sales of products.

And THAT, my friend is the key distinction.

Why so Many are Still Convinced That MLMs are “Pyramid Schemes”

While no legit MLM companies pay you for just finding someone to join your downline, they do have a way of getting around this technicality. What they do is whenever a new person joins, he/she more often than not will have to buy some type of “starter’s kit” to get started. And that starter’s kit results in product being sold and therefore money for the MLM company AND for the distributor

This way MLM companies ensure their MLM distributors are well compensated whenever someone does join their downline AND to encourage their distributors to grow as big of downline as they can.

The undertone here is of course that folks who want to become a distributor for a network marketing company will OF COURSE want to buy and try the MLM products – otherwise, how can they sell them and the business opportunity to anybody else?

This isn’t a problem if the products are legit, desirable, fair-priced, and the distributor feels GOOD about selling it. But more often than not… this isn’t the case.

In reality, the question is not whether MLMs are pyramid schemes, but rather, if their products are justifiable and capable of sustaining the business.

So no, MLMs are not pyramid schemes, but they still get labeled as one by the masses because of their structure resembles that of a pyramid and because well, frankly the way they move their products.