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The Difference between MLM and Ponzi or Pyramid Schemes

By: Laura A Shapiro

When it comes to the concept of network marketing, also termed MLM or multi level marketing, there is quite a bit of negative and misleading information to be found.

This article will clear up the confusion about the difference between MLM and and pyramid or Ponzi schemes.

Let's start with the basic terms. Network marketing, also referred to as multi-level marketing or just plain MLM, refers to a legitimate business model for marketing and selling products and services.

An MLM model based organization doesn't take on a sales or human resources staff. They don't conduct interviews to evaluate if you are right for the job or if that job is right for you. Instead, they allow you to join the company as a member (first, by paying a start-up fee) and to spread the word and sell their products. MLM companies also pay you when you bring in other members to the business. You in turn make commissions on the amount of products/services you sell and the number of people you can recruit into helping you with sales and recruitment.

Although each MLM company differs in what products or services they offer, how long they have been in business, in their marketing/training methods and strategies, in their compensation plans, just to name a few. . .

. . .Network Marketing, Multi-Level Marketing and MLM businesses are ALL legal businesses.

Did you know that Shaklee, Avon and Mary Kay are all multi-level marketing companies?

However, legal MLMs are frequently mixed up with illegal pyramid or Ponzi schemes where members make money when they bring other people into their business.

This concept is similar to what happens in network marketing but the scam comes into play with pyramid schemes because there are really no products or services involved so no real value is really being offered to anyone.

One of the biggest reasons for the confusion between MLMs and Ponzi/pyramid schemes is that the latter were actually created by previously unsuccessful network marketers who weren't able to make money the legal way. So, they made their own illegal rules. In their early days, Ponzi schemes were more common because they weren't recognized as such. Nowadays, the FTC clamps down on them very quickly if they do happen to crop up and they are usually shut down before they can do much damage. The reason that network marketing companies are so strictly monitored by the FTC today is because of the past dealings and damage created by pyramid and Ponzi schemes.

So, the reality is . . .the "MLM scheme" doesn't exist.

In reality, network marketing companies are helping thousands of people around the world to start their own businesses from home. These new business owners include people who were laid off from their jobs, those who lost their retirement funds and need a new source of income, moms who have decided that they want to spend more time with their kids, etc. And most network marketers enter into the business because they want to represent products that have already had significant impacts on their lives.

But, the most recognized statistic about MLM is unfortunately true. . .the 97 % failure rate. Yes, this is also true. Does this make network marketing a scam or scheme? No. But it probably makes you wonder what it takes to be in the elite 3%. For most of us, it takes training, work, dedication and time. If you've been told that you don't need to put in any effort to succeed in network marketing, you've been told wrong.

The reason that network marketing is so appealing is because it offers the opportunity for residual income and the flexibility to set your own hours and be your own boss.

It's also something that you can start out doing in your spare time and at your own pace. If you are interested in becoming involved in network marketing, you have an enormous choice of solid, stable and exciting options.

So, let's set the record straight. There is no such thing as an "MLM scheme". What's not so pleasant is that only a small percentage of network marketers are successful.

There are many factors that contribute to how successful you can be in network marketing. And having the right attitude is definitely at the top of the list. But, just as, if not more, importantly, you need the proper instruction and support from your team.

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