MLM vs Pyramid Scheme


In search of money, most of us have engaged in businesses that have brought both grace and sorrow. Some businesses have promised us fortunes, and at the end, we succumb to losses. Some of such businesses include pyramid schemes and Multi-level marketing. All these businesses promise quick money, and many of us tend to confuse them. However, they are different in various ways.


What is Multi-level marketing?




This is a business model that strategizes in referral marketing. In this model, products and services are sold by sales agents who get paid from the profits generated from the sales. The distributors also earn from recruiting more agents. The profits your recruits make is also distributed to you at a certain percentage.


What is a Pyramid Scheme?




This is a type of business whose operation is mostly illegal. In this business, the investors are promised high returns from the money they use as the registration money. In this business, the investors are encouraged to recruit more people where they get paid from the money paid by the recruits. Most of the pyramid schemes don’t involve in the selling of products.


Differences between Multi-level marketing and Pyramid Schemes


One of the greatest differences between MLM and Pyramid Schemes is how the businesses operate. In pyramid schemes, their purpose is getting money from you and uses you to get other recruits on board. On the other hand, MLM’s purpose is the distribution of products. MLM aims at getting many distributors so that their businesses can prosper through massive sales.



Earning of income in MLM is slightly based the commission that this distributed to the marketers. In this business, a person can recruit other distributors, and commissions are paid from the sale of the products. There is a model in MLM businesses whereby a leader is given some distributors and a goal to achieve. When the goal is achieved, the commission level also increases. In the pyramid schemes, each person has to recruit other people in the scheme. The person on top of the scheme gets money from the people they have recruited. The pattern will always continue as more people are recruited in the scheme. Here people have to pay to join the scheme and convince other people to join before earning.


How promotion works

In pyramid schemes, people move up the pyramid or get promoted regarding how many recruits they bring on board. On the other hand, Multi-level companies promote people regarding the number of products for sale. In pyramid schemes, you can easily promote yourself without an official appointment, unlike MLM where there is a procedure of promotion based on the set guidelines.


Products sold

In MLMs, the products being sold are inexpensive or one-time purchase products. They may include shampoo, skin care products and supplements. These products are from door to door or through the internet.  In pyramid schemes, the products are always imaginary where they come up with a miracle product but insist on the recruitment of more people than the actual sale of the product.

Operational timeline

When you research about the duration of operation of the two businesses, you will notice that MLMs have been in operation for over ten years. This is a longer duration of time, unlike pyramid schemes whose timeline is not known. Since pyramid schemes are always illegal, they never last for a longer duration. Pyramids shut down the moment they have earned a huge number of profit from its recruits.


If you are indeed self-motivated and would love to make money through a side hustle, then it’s advisable to try out multi-level marketing. However, you have to understand the company’s operations through intensive research from internet and asking around. Always learn that promises of using little cash to get huge sums of cash is always Pyramid Schemes and can end up hurting bad.


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MLM vs Pyramid Schemes



MLM vs. Pyramid Schemes


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