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MLM or Pyramid- What's The Difference?

By Vickie J. Scanlon


First let me say MLM is not Affiliate Marketing. Sure you sign up for the program. They even give you a nice website and possibility some free leads to help you promote their products. So what is MLM-the good and bad.

What is MLM

MLM stands for Multi-Level Marketing. It is the selling of products by using independent distributors, who in turn, try to recruit others on their downline.  (downline defined: people that are below you)

As a distributor, you must persuade 5, 6, or 10 people that the product you are selling is great. Thus, getting them in your downline. Though MLM is legal, it does skirt within the gray areas of the law. So knowing the difference between a legitimate MLM program and a pyramid scheme is important.


Legitimate MLM offers:

1. An income can be earned solely on the sale of services or products.
2. Offers commission from people under you
3. New people that come aboard may have to pay for their own training, training material and may have to buy a significant amount of products in the MLM program to stay active.
4. MLM follows the 70% rule. You have to sell 70% of the inventory you purchased before buying more. This prevents inventory loading-and the claiming of additional bonuses.

So, when does the MLM begin to look like a pyramid scheme?


When does MLM become a pyramid scheme?

MLM slides into a pyramid scheme when the salespeople become more concerned with recruiting a downline; or buying more product than they will ever sell, just to get the bonuses or to reach the next level. Here are some factors to consider before outlaying a good sum of money and your time.


1. If the product is so good, why aren’t they selling it through the traditional marketing system?
2. Why is it okay to have no experience? And you will hear: “Anybody can make this work!” It’s an opportunity of a lifetime!” (Boy, is that an understatement to losing your money).
3. Sales people – the more sales people there are, the quicker the saturation of the product. What’s left? With any product, over time there has to be at least partial saturation.
4. Who’s making the money?
5. Are they selling you’re a dream of “easy money”? With this one, you will have to step back, stop salivating at the thought of big bucks-and take a good hard look at what they are saying. 
6. Are they more interested in having you get people in your downline.
7. They don’t put a threshold on the ratio of how many products you buy to the the number of products you sell. 
8. If you get a bad taste in your mouth or a gnawing feeling in the pit of your stomach, that may be your first unconscious clue that maybe something is not quite right with this opportunity.

Yes, MLM programs or party planning programs are legal and sustainable- but the legality of these programs hit the gray area of the law. The biggest question you have to ask yourself is this, “What will be my end benefit?” And if you step back and look objectively at your situation, and if all your hard work is only benefiting the people above you, then it might be a pyramid. 


How MLM and Affiliate Marketing 2-Tier Is Different

Some affiliate programs give you two ways to earn a commission: 1) if a customer buys the actual product or service; and 2) through the promotion of the business’s affiliate program to others. The additional income is a small residual income from sales made by your downline, and I might add, it doesn’t cut into the commission that is being made by your affiliates. “Well, this is just like MLM,” you say. No, not really. Why? 

1) You don’t have to encourage others to join their affiliate program-it is your option to choose to do so.
2) You don’t have to buy the product-just sell it.

However, if you elect to encourage others to join their affiliate program, I would suggest that you make sure that the program pays. If they pay you on time without question, then and only then promote the 2-tier program. This helps to keep your creditability intact, and prevent others from feeling your pain of loss income.

To conclude, MLM is not an affiliate program. However, MLM can be either a legitimate undertaking or a pyramid. That is where you need to know the difference, as well as, what you want in a home business.


About the Author:

Vickie J Scanlon  -- Visit her site at: My Affiliate Place for articles, ebooks, how to of affiliate/internet marketing, tech accessories, utilities and accounting software, business computers  and more. 

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