mlm vs pyramid scheme

Most of the people think MLM business is a scam. People are confused about Network Marketing and pyramid schemes, we will give a glance of information to know the differences between Multi-level marketing and pyramid schemes. Don’t Judge a book by its cover. 

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What is Multi-Level Marketing?

Multi-level Marketing (MLM) or network marketing is a way for individuals to sell products directly to the public, often by spreading the word through personal connections. The main idea behind MLM is to build a large network of distributors who can sell the products and increase sales exponentially. The promoters of MLM earn commissions on product sales and also receive compensation for the sales made by the people they recruit. The compensation plan in MLM is designed to reward individuals at different levels based on the total sales volume generated. Multi-Level Marketing is completely responsible for promoting and selling products or services of the business. MLMs follow legal guidelines and place a strong emphasis on product sales, compliances, and training.

What is a Pyramid Scheme?

Pyramid schemes are fraudulent schemes that pretend to be MLM programs. The key difference between a pyramid scheme and a legitimate MLM program is that pyramid schemes lack a genuine product being sold. Money circulation is the theme of this pyramid scheme rather than selling products or services. In pyramid schemes, participants try to make money solely by recruiting new participants into the program. These schemes often promise incredibly high returns in a short time for doing nothing other than investing money and getting others to do the same. Pyramid schemes use wrong hiring practices and don't have a long-term business plan.

Multi-Level Marketing Vs Pyramid Scheme – Legitimacy

Selling products or services through Multi-Level Marketing is 100% legal in India. They need to provide accurate product information, offer fair refund policies, and disclose potential earnings to participants. But Pyramid schemes are not legal, and they rely on continuous recruitment, leading to financial losses for the majority of participants.

To determine the legitimacy of a business plan, the Federal Trade Commission (FTC) has established guidelines that help consumers understand the difference between legitimate MLM programs and illegal pyramid schemes. Here are the key distinctions of Multi-Level Marketing vs. Pyramid Scheme:

  1. Sales of actual products or services: MLM programs involve the sale of real products or services to consumers. It means that there is a genuine product that customers can purchase and use. In contrast, pyramid schemes do not offer any tangible products or services to sell. 
  2. Commissions based on product sales, not enrolments: In MLM, individuals earn commissions based on the sales of products. It means that their earnings are tied to the actual purchase and use of the products by customers. On the other hand, pyramid schemes primarily focus on enrolling new participants into the program and earning money based on their recruitment, rather than the sale of products. 
  3. Company buybacks of inventory upon termination: Legitimate MLM programs often have policies in place where they buy back unsold inventory from participants who wish to leave the program. This provides some level of protection and ensures that participants are not left with excess inventory and financial loss. In contrast, pyramid schemes do not involve inventory since no real products are being sold.

Product/Service Emphasis

MLMs are based on real products or services that have value and are considered legitimate. The primary source of income in MLM comes from selling these products or services to customers who are not part of the MLM network. The focus is on generating retail sales and building a customer base.

On the other hand, pyramid schemes typically lack genuine products or services that hold substantial value. Instead of emphasizing product sales, the main emphasis is on recruiting new participants into the scheme. The primary way for participants to earn money in a pyramid scheme is by enrolling others and collecting fees or investments from them rather than through the sale of products or services.


Opinions on MLMs are different and depend on various factors. Some view them positively as opportunities for entrepreneurship, flexibility, and community. Others have negative concerns about recruitment-focused practices, potential financial losses, hierarchical structures, and product quality. In contrast, pyramid schemes are generally viewed negatively. They are widely recognized as fraudulent schemes, promising quick gains without genuine products. People are not convinced of pyramid schemes due to their illegal nature and the likelihood of financial harm to participants.

Opinions on MLMs range from positive to negative, while pyramid schemes are widely seen as deceptive and exploitative. Some people might be confused but it is important to research and make informed decisions when considering involvement in any business opportunity.

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31 May



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