Is your mlm a phony pyramid scheme or is it a legitimate business opportunity?

It never ceases to amaze me how many times I hear the words "isn't mlm a pyramid scheme?"

Now, when people ask this question they usually ask it because they have heard on the grape vine that there is something just not quite right when it comes to mlm and they also have a pretty good idea that pyramid schemes are illegal. So guess what………there has to be some kind of connection, right?

Wrong Assumption

Based on a 'rather sketchy' understanding of the type of organizational structure used in mlm they assume that there must be some connection between mlm and pyramid schemes. Instantly the two become one in the same thing, and mlm's reputation suddenly becomes rather badly tarnished. Mlm is now the BAD GUY!

They have put 2 and 2 together and come up with 5! WRONG answer folks!

In other words they make an assumption based on rumor and innuendo but not in any way on fact!

It surprises me that people even consider that any legitimate mlm (network marketing) business would be based on a pyramid scheme for the following reasons:

  • How do they think many legitimate mlm (network marketing) companies have stayed in business for so long if they are operating as an illegal pyramid scheme?
  • How do they think these same companies continue to grow and be significant players in a global market place if they are in fact an illegal pyramid scheme?
  • Wouldn't governments concerned with illegal business practices have closed down these companies if in fact they were operating illegally?

Doesn't really make sense does it?

So if this is all a bit far fetched, why is there still concern about the possible relationship between these two models?

Well, actually the answer lies in this question………

There is NO RELATIONSHIP at all between the model used by an illegal pyramid scheme compared with the business practices and type of organizational structure used by mlm (network marketing).

Let's compare

In order to make this point crystal clear I would like to give you some good quality information on the difference between these two very dissimilar and totally unrelated business models.

Let's take a couple of minutes to explore this in more detail.

Here's what I am going to do………

To make your job easy and to help you to determine whether or not any mlm (network marketing) business opportunity you evaluate is a phony or a legitimate business, I am going to provide you with:

  • A detailed description of a pyramid scheme, so you'll know one when you see one
  • An Evaluation formula so you can compare a genuine mlm (network marketing) opportunity against a pyramid scheme
  • Two examples of what industry experts have to say
  • Three important steps you need to take to make sure you do not invest your time and money into a pyramid scheme?

You need to be able to identify an mlm scam or in other words, an 'imposter' from the 'real deal'!

This is vital so you feel 100% confident about how to proceed.

So let's get right to it!

Description of a Pyramid Scheme - How will I know one if I see one?

  • The INVITATION - an invitation is made to join a scheme where it is promised that significant money will be earned in return for little effort. People are locked into a position within the pyramid which means that they can never rise higher than the person who sponsored them into the scheme no matter how well they perform.
  • The HOOK - recruits are required to pay a fee for joining the scheme. This means they send MONEY to people above them in a chain but there is no product or service sale of any true value involved in this transaction.  People in the line below send money to those above them, but there is no requirement to provide anything of true value in exchange for the money paid. In other words, everyone is being paid to recruit people into the scheme. There is no true value sale of a product or service involved.
  • The CATCH - there are many links in this chain - a chain that can break at any point and then collapse. If this happens, recruits may never recoup the money they paid to the people above them and they can therefore be out of pocket big time! And as for making money………well that's very doubtful to say the least and a huge gamble at the best of times.

If you are offered the so called 'opportunity of a lifetime' where you are required to send a sum of money to others above you in a chain in return for NO product or service of true value, and you are promised that money will also be sent to you in the same way, then this is a pyramid scheme.

This is NOT mlm recruiting………Don't ever get the two confused!

Evaluation Formula

So you can compare a genuine mlm (network marketing) opportunity against a pyramid scheme.

If you are approached to join a mlm (network marketing) business you will be offered a genuine business opportunity based on earning commissions from the sale of products and/or services that offer the customer true value for the money they spend.

A genuine mlm (network marketing) business will have genuine customers. When customers buy products and/or services from a business, that business makes a profit and commissions can therefore be paid to agents (distributors) based on the products/services sold.

As an example………in his book 'What You Should Know About MLM Before You Join' John Counsel has this to say:

"Multi-Level Marketing has been acknowledged by Australia's Trade Practices Commission as a legitimate, legal, honest, ethical and effective system for the distribution of goods and services. The official verdict is in once and for all."

Let's now compare a pyramid scheme to mlm (network marketing) using a set of simple criteria to evaluate each model.

How is the income earned?

  • Pyramid scheme - the income is earned from recruiting. Income earned from retailing a product or service is artificial.
  • Multi-Level Marketing (network marketing) - All income is earned from retailing products and/or services. There is NO income simply for recruiting someone to join the business.

Income potential

  • Pyramid scheme - Participants of these schemes are locked into a position and can NEVER pass the person that sponsored them into the scheme. In other words, no matter how hard they work they will never be able to surpass the income potential of the person above them in the chain. The people at the top of the chain make the real money until the pyramid collapses. So everyone who joins has less opportunity to make any money from this type of scheme than the person who recruited them. The lower down the chain you are, the less chance you have to make any money at all.
  • Multi-Level Marketing (network marketing) - Distributors income is based on effort and achievement. This is a very ethical and fair business model where it is possible to surpass the income of the person who sponsored them into the business and indeed others above them in the organizational structure based on how hard a distributor works and the results they achieve in their business. In other words, anyone can earn the top money based on personal achievement NOT on their position in the organization. The business opportunity and income potential improve with time as the business grows and gains exposure. Genuine financial independence can be a reality!

Product sales

  • Pyramid scheme - Income from product sales is based on an ever increasing sliding scale. Recruits buy products from their recruiter and then on-sell these products to the people they recruit. The problem is the price has to increase at every level down the pyramid so people can make some money. However it doesn't take long at all until the products are so ridiculously over-priced that they cannot be sold at all!
  • Multi-Level Marketing (network marketing) - All income is derived from the sale of products and/or services through a commission and bonus structure. This means that income to distributors is based on personal effort and achievement of business results. In the best mlm (network marketing) compensation plans, all distributors buy their products at the same price and commissions are paid as a reward for performance and business results.

Product Quality

  • Pyramid scheme - The product is not the important thing so it may or may not be a quality product. Largely the product is seen as bait for the 'recruiting hook' and usually would not come with a guarantee and would not be able to be returned or a refund paid. It is even possible that there may not in fact be a genuine product available at all.
  • Multi-Level Marketing (network marketing) - Products are of primary importance because the success of the mlm (network marketing) business model is based firmly on repeat sales to happy customers. Products are therefore in most cases quality assured, guaranteed to perform or satisfy the customer, returnable and refundable.


  • Pyramid scheme - There is very real financial risk, particularly for those at the lower levels. This is due to the fact that the products which are of dubious value anyway, become harder and harder to sell further down the chain (or retail), because of the over-inflated price that builds as the chain grows downwards.
  • Multi-Level Marketing (network marketing) - There is no financial risk. Because all monies paid are in respect of real value products. In most cases these products are guaranteed and returnable/refundable so distributors can get their money back if they choose too.


  • Pyramid scheme - Often the reasons people are attracted to such schemes is because they are driven by selfish and greedy motives. They are looking for others who subscribe to the same values in order to make the scheme work. They have no regard for who might get hurt in the fallout but are mostly concerned with the personal gains they hope to make.
  • Multi-Level Marketing (network marketing) - Generally people are attracted to the mlm (network marketing) business model as they have a desire to be in a genuine business for themselves. They choose mlm (network marketing) because they understand the positive attributes of this business model including leverage and residual income. Their desire to succeed in this business is underpinned by their understanding of the need for honesty, integrity, teamwork and the spirit of cooperation which ultimately leads to supporting others to also achieve their goals. Rewards in the way of income and business success naturally follow this approach.

Two examples of what industry experts have to say

In his book 'What You Should Know About MLM Before You Join' John Counsel has this to say:

"Pyramid Selling is not a structure…it's a mentality"!

He goes on to say………

"It's not even the greedy bleeding the needy as some naïve campaigners in government and media claim. It's nothing more than greedy, lazy, selfish, people ripping off others who are just as greedy, lazy and selfish. Because nobody ever joined an illegal Pyramid Selling scheme for any other reason than plain, old-fashioned greed and laziness. Think about it."

In his book 'Shakeout' the worlds leading network marketing strategist Edward Ludbrook has this to say:

"Pryamid Selling is when the majority of income is made from the money people invest when they join, rather than from product sales. Thus it is a purely recruiting scheme where for every winner there is a looser."

Customers are the only people who can introduce profit into a business and make it legitimate."

Don't be fooled by the propaganda!

Don't dismiss mlm (network marketing) until you have

thoroughly investigated the facts!

Make sure your mlm (network marketing) opportunity is NOT

a pyramid scheme IMPOSTER but is the REAL DEAL!

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