Every time I try to look up information on a product that is sold through independent sales reps or “promoters” I find forums filled with angry comments about pyramid schemes.
Multilevel marketing and direct sales companies are not pyramid schemes.
It can be annoying to find your Facebook feed filled with nothing but product promotions and outlandish testimonials but that doesn’t make multilevel marketing companies or their products inherently evil. (It just means you’re Facebook friends with some pushy promoters!)
Here are the differences between MLMs, direct sales, and pyramid schemes.
Pyramid Schemes
With a pyramid scheme no product or service of inherent value is being exchanged for money. Therefore if you give someone money and they, in turn, give you a product (even if it’s an overpriced product) they are NOT participating in a pyramid scheme.
Here’s the exact definition of a pyramid scheme:
A form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.
So basically with a pyramid scheme the only way you can earn money is by recruiting other people who give you money. They then have to go on and recruit people below them to earn anything. If there is a product or service sold which can be profited off of it is not a pyramid scheme.
Direct Sales
Direct sales are pretty straightforward. As a direct sales consultant you can work with a company and sell products for a commission.
Some companies will require you to purchase starter kits to get started while others will not.
An example of a direct sales company would be Jewelry in Candles. (I tried to find more examples but it looks like the majority of companies have moved on to the MLM model!)
Multilevel Marketing
Multilevel Marketing (MLM) also known as network marketing definitely has a direct sales component to it. The biggest difference between being in direct sales vs. an MLM is that with multilevel marketing you can earn money by recruiting other salespeople.
With an MLM the more people you can recruit to be in your downline the more of an opportunity you have to earn money. With this type of opportunity you have the chance to earn off of selling of the actual product as well as earning a commission of the sales your downline (the salespeople you recruit) earn.
Here are just a few examples of multilevel marketing companies:
- Jamberry Nails
- Plexus
- Thrive Experience
- Young Living Essential Oils
- DoTerra Essential Oils
Why Do Companies Use the MLM Model?
The MLM model is used as a means of advertising. Rather than the company having a large advertising budget they instead have their salespeople spread the message.
In my opinion multilevel marketing is not bad in and of itself. Sales reps who are too pushy or make claims that are too far from reality give MLMs a bad name. Of course, that’s going to happen when anyone can become a salesperson.
I wouldn’t discount products that come from MLMs altogether just do your research and use common sense when buying.
Photo Credit: (c) Can Stock Photo
I’ve been looking into the options for a while. I used to have a distaste for all of them, but I’m slowly beginning to see the good side of these companies. It seems to come in the form of women who are able to sell their products without pushing them on all of their friends and are willing to put in many hours of work to see results.
I did sever interviews of successful women who have done MLM and Direct Sales for years. I don’t know if you’d be interested in sharing that information with your readers or not. Here’s the link, but feel free to delete it if that’s your policy. I won’t be offended in the least. http://www.theathomejobreview.com/job-reviews-1/multi-level-marketing-direct-sales-how-to-make-1000week
I’m like you. I used to have a distaste but am coming around to them when done in the right way. Promotion methods some use are what can turn me off to them.
Interesting article. I do think there is a lot of confusion about what is pyramid scheme and what is an MLM. I still think that in general it’s a better idea to start your own business instead of joining an MLM or other type of company.
I think MLMs can be good if you can find the right product. One of the bloggers I follow is making 1million+ per year with a MLM but it goes perfectly with her blog. I think it all comes down to finding a company you truly believe in. (Of course I also like the starting your own business idea 🙂 )
If you are thinking of starting your own company, there is ALOT you need to fund (monetarily) as well as consider and prep for legally in addition to ‘making a product’. Anyone that has watched “beyond the tank” (shark tank after the fact) should think through many of those things before they begin and make sure you know how long it will take you to start making money (and what your liabilities are).
I agree. There are MLM’s that DON’T require you to meet a quota: World Financial Group is one of them. Agents must get a Provincial/State licence to sell any products, which means they have a fiduciary trust to act in the clients’ best interests. I sure wish every other salesperson on the planet had the same obligation!
Another one to look at is ACN. They act as a wholesaler/marketer for utilities services. So if you have a cell phone, landline, or pay for heat and electricity in a deregulated area, you’re probably already buying these services from one of their providers. Why not get the wholesale rate, and make/save some money by helping others to do the same?
Thank you for writing this article. The biggest challenge for all the honest people in MLM’s is the number of people who’ve decided they are all the same – and therefore horrible. We don’t tolerate prejudice towards people with a different colour of skin, why is it OK for ignorant people to spread their misinformed hatred of a business model?
I have to disagree, this is the best way to create leverage many times over, average people start businesses and successful people build networks creating a network can create a lifestyle with residual income like you’ve never seen I know I’m watching me do it !
I have a ton of friends in MLM. In fact, one of my friends is very, very well-known in a certain company and are in all of their promotional materials (and making a TON of cash). Some other MLMs include: Arbonne, Usana, Beachbody, Stella and Dot, and Chloe and Isabelle (my favorite!). It’s a nice way to make money without having to develop your own product.
I agree. If I ever found a product I absolutely loved I see nothing wrong with joining a MLM. It can be a great way to earn extra money in the right circumstances.
I love your website! Congratulations on your success with your blog and everything good. I want to thank you for this article because I have recently joined with a direct marketing group which I absolutely love that checked off all 3 of my criteria:
1) can I sincerely get behind the.product
2) Is the potential to make money real and
3) Will my support team actually support me not desert me
I felt really great about my decision until some people tried to tell me what I can’t and won’t do. Strangers mind you.
AHH…the internet! Anyway, your article put me back on top feeling great and confident again, so, thanks!!
thats a good one. You can choose a right company to work with which can makes your dreams come true. There are hell lot of companies out there. Be careful in choosing.
I have got my one and am greatful for that. So dont be so late to achieve your dreams.
The best way to get success in life and help others to acheive their dreams.
hi alexa,
its a great thing that you are at least thinking what others cant. glad to meet you.
your thought process and way of thinking correct.
I wish you found what you looking for.
Thanks ,
By your welwisher
Im sure i could help with a great product ,just contact me and will be glad to give all the info about this new invention
Hi Alexa. Are you still looking for a great product offered through a great network marketing company. I have found one and am very passionate about the company and its products. After working a 9-5 job for 20 over years, I finally found my calling . It’s a great company with a founder who always preach about ethos and ethics. Unique product with a breakthrough technology that really works and has helped a lot of people recovered from their health challenge. A fair compensation plan that allows to earn more than your upline if you work for it. If you do not mind spending some time looking at the opportunity, please contact me. This product is available in 34 countries and expanding amid COVID-19 where a lot businesses are closing down.
There is alot of misunderstanding between “network marketing”, “direct sales”, “Direct marketing” and MLM’s. You are correct about Pyramid schemes, and none of the companies that have been around for many years and are part of the direct selling association are Pyramid schemes. However, although direct sales/direct marketing & MLM’s are all networking marketing, a network marketing company is not necessarily an MLM or a direct sales company. There are those that are Direct Marketing, which means that the person/rep is Not a distributor – they are not allowed to Sell any product. They simply refer people and get paid for it. MLM is Multiple levels of distribution, which mean that people ‘could’ purchase your product from a website you control, or you ‘could’ purchase product, keep it in your garage and then ‘sell it’ to your friend. Simply because a company pays you on multiple generations does not make it an MLM (check the legal definitions). If that were true, every corporation would be an MLM – they have salesmen, sales managers, regional managers and a VP of sales. They all get paid when the ‘salesman’ makes a sale, and make bonus when different levels are met. Network marketing is a great way to make an income. The problem is that many of those in Network Marketing don’t tell a prospect the whole story (many times because they themselves don’t know the comp plan either) and therefore people that ‘sign up’ have inaccurate information. Before anyone signs up, they should investigate the compensation plans, the customer base, the sales cycle, the customer retention rate, the customer reorder rate and much more of several companies. You wouldn’t buy a franchise without knowing that, why would you sign up for a network marketing job without the right information??? (Usually out of Naive-ness and emotional ‘wow-ness’ is the truth of the matter. And, if the person you are asking questions of cannot answer all of what I noted above in 15 min or less, you REALLY should not be signing up for that company! As a previous corporate executive, and someone that had 2 network marketing companies go out of business, trust me that when I went looking for a job after that I was looking for my ‘last’ company not my ‘next’ company. If you are just getting into network marketing because you ‘love the product and want to get it for free’, Great! Good for you! That is a hobby, not a job. If you really want to find the ‘right’ company for YOU, you need all the information, good and bad, to make that decision. No company is ‘right’ for everyone – you have to find what is right for your lifestyle, time commitment, personality style and income requirement. If anyone wants my free document on ‘what to look for and ask when evaluating a network marketing company’, you can email me at [email protected]
MLM’s are to draw in loser’s who don’t understand what they are getting into … that is, smarter people who are going to force the not-so-smart newbies into paying over their own hard-earned money IF they don’t meet sales quotas. It’s not a matter of “not making any money” if you don’t make any sales …. you actually have to pay up (both meanings for ‘up’) if you don’t make sales targets. You have to buy a minimum amount of product and if you don’t sell enough of it, well then you are going to be quickly going bankrupt.
I never understand how someone “forces” another person to do something. They held a gun to their heads? Ransomed their children? Or perhaps just offered them an opportunity that their dead-end jobs never will? You’re calling them “losers” and “not-so’smart” and assuming they are ignorant victims, when I have seen many cases of people who, against what they were SPECIFICALLY TOLD during the recruiting process, believed they could get rich quickly without any real effort. When they found that it wasn’t a lottery ticket but a business that required learning and effort, they quit. Whose fault is that?
You’ve probably bought things in your life – a car, a home, life insurance – that somebody else had to assist you with. Did all those people mislead you in order to make those sales? Or do you think that sometimes people make a choice and later sometimes decide it wasn’t the right choice for them? That doesn’t make realtors, car dealerships or insurance companies evil, does it?
Thank you, Alexa, for tackling this subject! I’ve been in a Direct Sales company for 2 and a half years and have learned a lot about the surprising benefits of it. You mentioned that if you ever found the right product, that you would consider joining an MLM, so I was wondering if you have heard of Trades of Hope. We empower women around the world out of poverty and sex trafficking through the sustainable business of marketing their Fair Trade accessories, gifts, and decor here in the US. Check us out and let me know if you’d like to learn more. Our founders specifically chose the Direct Sales business models because it has the fastest and most exponential impact. In 7 years we have developed dignified partnerships with over 13,000 artisans in 16 countries (including the US!) So I’m a Direct Sales convert. 😉 Thanks again for the article and hope to hear from you! https://www.youtube.com/watch?v=VQOLZORgf3A
Thanks for the info, Melanie!
I am currently sticking my toe into an MLM but I am not looking to make money. I love the product and I am telling others about it because I think it would be good for them. I am not concerned if people become “down line” sellers or not. I just buy what I need of the product for my own use. I don’t warehouse ANYTHING. I guess it is possible to decide you no longer want to be a consumer and want to get rid of any personal product you still have. I have seen people sell their excess on Ebay. Other than that, I have never seen anyone in this product line encourage anyone to buy more than they need for personal consumption.
I think an MLM can make sense when you really love the product.