If the title confuses you, think Tupperware, think AmWay. This form of marketing is also known as network marketing. In my opinion, this is the most natural form of marketing that has unfortunately been exploited by many pyramid schemes. In fact, a pyramid scheme has almost the same blueprint as network marketing, save for a few differences.
Just as a disclaimer, this article is only a fair assertion on how one can avoid pyramid schemes, and how one can make money from MLM, if at all. Humor me. So let us start with the basics. How do you distinguish a pyramid scheme from a legitimate MLM? In 1979 Amway won a landmark case, in which it was declared that they are not a pyramid scheme. They noted the following factors as distinguishing factors between them and pyramid schemes. Legitimate MLM’s do not pay fees for simply recruiting new salespeople. This is one of the most basic ways of telling apart the scammers. Ask yourself these questions, why would anyone pay you for recruiting a sales person who is not actually buying anything? How are they making profit from this practice?
To make money in a legitimate institution you have to sell actual products, like every business out there. As a manager, you get a percentage of the commission due to the salespeople in your team. So still, actual products are being sold. This is not true for a pyramid scheme. The best of MLM’s do not require you to buy starter kits or impose minimum monthly order values to stay on as a member. I mean imagine, as a salesperson, if you ever fall under your monthly quota, you have to use your own funds to supplement just to stay on as a member. When does this ever become profitable then?
Pyramid schemes will usually charge you joining fees and impose mandatory trainings, which come at a cost to you. They might also charge membership fees. The products sold in pyramid schemes (if you ever get here) are usually of low value and their price is usually not very competitive. To aggregate these points, a legitimate MLM has an ardent focus on product sales as opposed to recruitment. It seems quite elementary that to stay wary of the pyramid schemes doing the rounds you just have to observe the above. But below are a few more pointers on how to avoid them:
Avoid anyone who sells you a list of potential sales leads. Imagine, if this same list has been sold to 9 other people before you, it is probably washed out by the time it reaches you and hence useless. And to be fair, if they have the sales leads why are they not chasing them down?
Do not sign up for an MLM at a motivational event. Even when you do go for one of these events, take time outside of it to do your own due diligence about the company you are about to sell and its products. Are their products any good? Do they have any recent lawsuits against them? How are competitor products, and their pricing?
Be particularly wary of anyone who tries to get your buy-in by flaunting their own success. And the golden rule on anything money related; if it sounds too good to be true it probably is. It is easy to be purely critical of MLMs. To be fair though, many people have amassed wealth through this method of selling, or at least built a sustainable side hustle.