IS NETWORK MARKETING A PYRAMID SCHEME?
if not, what's the difference between NETWORK MARKETING and a pyramid scheme?
Let me guess, somebody has just approached you and asked you to join their network marketing business and your instant thought was - is this one of those pyramid scams?
You made the right decision to do some research and be concerned, because pyramid schemes are illegal and can put you in to a lot of trouble. The GOOD NEWS is that NETWORK MARKETING or MULTI-LEVEL MARKETING (MLM) is a LEGITIMATE and legal business model.
To start with we will review the similarities and then work to distinguish the two.
Generally, the initial concern for people when introduced to a network marketing opportunity is when they see the compensation plan which resembles a PYRAMID IN SHAPE. Instantly they fear the worst as they draw a resemblance to illegal pyramid schemes.
The truth is that this pyramid structure is the SAME as every other sustainable business model across the world. This is best highlighted in the diagram below (figure 1.)
Is it the shape of the business model that dictates whether a business model is illegal?
No, of course not. If this were true every profitable company, government, church and school would be illegal and shut down.
It is not so much the shape of the pyramid that people should be concerned about, more the way in which the pyramid is created that distinguishes whether or not it is legal.