Is Network Marketing Just a Scam?

One of people’s major worries with joining a MLM company is that it will be a scam. We have all heard about network marketing companies that may have seemed legitimate, but in fact turned out to be a scam. People invested hundreds or thousands of dollars in what they thought was a legitimate business and the business turned out to be a scam causing them to lose all their money. Rather than helping their financial situation which was the reason for joining the company in the first place, they ended up losing what little money they did have.

Network marketing itself, is a legitimate business. It is based on providing people with real, legitimate products or services that they need and want at a fair price. It is NOT about taking advantage of a person’s friends and family. Unfortunately, while network marketing is a legitimate business, many pyramid schemes try to present themselves as legitimate MLM businesses.

One major difference between legitimate MLM businesses and pyramid schemes is that in a pyramid scheme there is either no sale of product or services, or the value of the product or service that is sold does not justify its price. The sale of the product or service is merely a disguise to portray the company as legal. If participants in the company are paid primarily from money received from new recruits, or if they are required to buy more product than they are likely able to sell, than the company may be a pyramid scheme. In a pyramid scheme new salespeople may be asked to pay for their own training and marketing materials, or to buy a significant amount of inventory. For a company to be legitimate the majority of commissions should come from products or services sold to customers, these customers should not be participants in the business. The main emphasis in a pyramid scheme is the recruitment of new associates. The result of this is that there is only a one-way flow of wealth, from bottom to top; there is no corresponding value flow from top to bottom. As a result, only the people on the top of the pyramid make the most money; the people on the bottom struggle to break even.

Pyramid schemes are illegal. Unlike legitimate MLM businesses in which the financial benefit is the result of a person’s dedicated efforts in building an organization that sells real products and services, pyramid schemes are based on taking advantage of people. For a person to actually make money in a pyramid scheme, someone else has to lose money. In network marketing, each person can multiply his or her efforts, skills, and talents by helping others become successful.