Legitimate MLM Opportunity or Pyramid Scheme? How to Tell the Difference

Getting involved with a network marketing and MLM business is an attractive option for many people. You have ready-to-go products, help getting started, and ongoing support and training from an upline dedicated to helping you succeed.
In addition to the ease of getting started, you have tremendous opportunity in MLM to make a substantial part-time income, and much more if you choose. Unfortunately, because of these advantages, a lot of illegal money-making schemes spring up daily and call themselves “MLM” or “network marketing” in an effort to appear legitimate.
What is a Pyramid Scheme?
These schemes typically work under names like “investment club” or “gifting program”. People participate by paying a fee to join or by giving a “gift” or “donation” to people further up the chain who joined previously. In return, the expectation is that they will get paid in the same manner by new participants who join later in the scheme.
In some pyramid schemes there may be a “product” of some sort involved (in an effort to look legitimate), but the clear focus is on recruiting and getting a big payout or benefit later in the plan.
Pyramid schemes come in different varieties, and many are made to look just like real MLM business opportunities. To help tell the difference between what is a scam and what is legitimate, watch for certain red flags.
Red Flags that Mark a Pyramid Scheme
- Do you have to pay a lot of money up front to get started in the business? Legitimate MLM opportunities do not require a lot of money up front.
- If there is a product, is there any emphasis on selling or using that product? True MLM businesses put focus on their products because they are the foundation of the opportunity.
- Is the focus strictly on recruiting and how much you can make by signing people up?
- If there is a product, and your up-front payment is for purchase of an inventory of that product, will the company allow you to return that product for at least a partial refund? Legitimate MLM and network marketing opportunities will do this.
Where is the Emphasis?
A good network marketing or MLM opportunity will have a balanced approach to building a real business. In a pyramid scheme, there will be a strong emphasis on recruiting and you will make your money just by signing up people. In MLM, money is made when products are sold and consumed by distributors and retail customers who are not involved in the business.
Bottom line – be wary if you see any of these signs: a large investment up front, emphasis on getting paid just for recruiting, promise of a big payoff later, no real product, or simply a cash payment required to join with payments to you for recruiting others to do the same.