Difference Between Multilevel Marketing Mlm And Pyramid Scheme With Comparison Chart
You must have come across such a message in your life and have ignored it. But there are people like mentioned in the above three bulletins, they become victims and eventually clicks on attacking links attached inside the mail content and boom, you’re hacked! With false advertisements and spammy materials, the USA has finally been tagged as ‘pyramid scam’.
While most of the focus has been a battle between hedge fund managers, what is often overlooked is the actual impact on the often low income individuals who were lured into this “business opportunity”. After spending a few thousand dollars to start their business, the distributors are incentivized to recruit new members, and build their “downline”. Upon advancing to higher levels within the pyramid, distributors must continue to buy certain levels of inventory each month. At these levels, it becomes increasingly challenging to sell the product. Eventually, distributors realize how pointless is it to keep throwing money away and it is estimated that 90% quit within one year. The article noted that most distributors lose between $1,000 and $10,000 with the average distributor losing $3,000.
Make sure the product or service offered by the company is something you would buy without the income opportunity and the product or service is competitively priced. Illegal pyramid schemes often sell products at prices well above retail or sell products that are difficult to value, such as health and beauty aids, new inventions or "miracle" cures. MLM companies are designed to make profit for the owners/shareholders of the company and a few individual participants at the top levels of the MLM pyramid of participants. Federal Trade Commission , some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization.
Yet, the sales from his downline distributors are also attributable to him. The distributor is compensated by a certain percentage of the sales from his downline team. MLM schemes may use high-pressure sales tactics to play on your emotions to get you to sign up, discouraging you from taking time to do research on the company. Some MLM schemes will encourage or require you to purchase more inventory, even if you already have more products than you can sell. Without doing this, you may be unable to maintain your status as a seller, get paid, or qualify for bonuses.
Avoid promoters who fail to explain their plans clearly and in detail. In particular, read the company's prospectus or other written material. (A prospectus is a legal document that gives prospective investors information about a company.) If you don't understand it, get someone independent of the company to explain it to you. Pyramid promoters often target closely knit mlm scam groups such as religious or social organizations, sports teams, and college students to increase pressure to participate. Some even expressly state that they are not a pyramid scheme.
Scammers use the legitimate business model as a mask and convince this group of people, they fall for the scams. The imbalance caused by pyramid schemes and the world’s economy is thus highly interlinked to each other. The above data explores the U.S economy and the people live there, a similar course of circumstances exists in other countries. Together they bring down the economy and cause an imbalance. As per the survey, 31% of the basic typology of pyramid schemes evolves from chain letters, 21% are from general pyramid schemes, 12% of gifting clubs, and finally, 7% of them from Ponzi schemes.
One study by AARP found that 73% of sellers either don’t earn a dime or actually lose money from the venture. One highly-circulated report from the Consumer Awareness Institute puts that number at closer to 99%. At some point, you’ve probably been contacted by a family member, friend or Facebook acquaintance who fancies themselves a budding entrepreneur. Maybe they want to offer you the “amazing business opportunity” of joining their team and becoming a seller too.
Many pyramid schemes resemble multilevel marketing businesses, which also involve a chain of adding new people to the operation. The key difference is that while a legitimate MLM focuses on bringing in people to sell the product, pyramid promoters emphasize the recruitment itself. Multi-level marketing is the model of selling products through a network of distributors. Distributors buy stock in the company’s product and then sell it on, keeping a cut of the profits. Money is not just made from selling, but also from recruiting new distributors – if someone signs up under you, you become their “upline” and receive commission from their earnings, too.