Network Marketing Is A Pyramid Scheme – Is It?

network marketingNetwork Marketing – Many people have the misconception that MLM, or network marketing is automatically a pyramid scheme.

If you do, you may want to take a critical look at how you came to that conclusion, because…

Network marketing or MLM does not mean that it is necessarily a pyramid scheme.

Read on, I will explain…

Granted, there are a lot of  network marketing opportunities and home based business opportunities that are really thinly disguised pyramid schemes – but there is a very distinct line between the two:

A pyramid scheme does not offer anything of value – it is mostly made up of “opportunity cost”, while the “product” or “service” is just there to make it legal.

(I am referring to “legal” pyramid schemes – I am not even talking about nonsense like Ponzi schemes which is obviously something to steer clear from).

To make things even more confusing, many network marketing programes have moved away from the “pyramid structure” for commission payments.

(The irony is that ANY corporate structure is – theoretically – a pyramid shape. Go and draw a diagram if you don’t believe me.

You have One or two big bosses on top making most of the money, a few more beneath them getting paid a bit less, and them more beneath them getting paid even less, etc. Except that the guy on the floor will NEVER make money in the corporate pyramid)

If you want to differentiate  real network marketing or MLM from pyramid schemes, consider this:

If the network marketing opportunity did not exist, would you still use it?

Fair enough, there has to be some space for earning commissions. In fact, many network marketing companies have separate plans for consumers and marketers. The marketers have to pay an additional fee to partake in the referral program.

It is not unfair – it is just normal business practice. In other cases, you will probably end up paying a little more for the product or service to make up for the commissions that have to be paid out.

Keep in mind, though, that where other companies with different business models would use normal marketing channels which would cost them money upfront, MLM and network marketing companies use their networks of people to do the marketing – so the budget for advertising is already there, it is just spent on their distributors, and not on normal advertising channels.

However, the big question remains:

At the base price, would the network marketing product or service be worthwhile using?

You can see various network marketing companies that have been around for a number of years – they are clear examples of products or services based on value, and simply connected to a network marketing opportunity, and uses a multi level distribution system instead of conventional advertising channels.

At the end of the day, there is a fine line between being skeptical (which you should be with all the rubbish out there), and classifying legitimate network marketing business opportunities as “pyramid schemes” – just because you are scared it won’t work for you.

Now, Is MLM or network marketing a pyramid scheme? 
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