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The Difference between MLM and illegal Pyramid SellingWritten by Frann Leach
How can I tell a legal Network Marketing business from an illegal Pyramid? Network Marketing — also known as MLM ('multi-level marketing'), relationship marketing and referral marketing, is 21st century way for entrepreneurs to build a high income, without having to make huge financial investments. Most MLMs don't need any premises beyond a computer desk and perhaps a filing cabinet (though some may need storage space for product). Unlike franchises (the business opportunities of 20th century) in general upfront investment is small and training is usually free or very cheap. Overheads are low or non-existent, profits can be very high indeed.
At first glance, MLM is very similar to pyramid schemes which have been made illegal in most of West. In pyramid, a representative pays his initial stake when he is recruited and is then shown how to recruit other representatives. Every representative recruited brings a bonus and adds to potential residual income. But, if no customers are required, sooner or later whole structure will collapse, because there is nowhere for income to come from. In pyramid schemes, people at top are only ones who can make money, because there is a limited pool of potential recruits, and no other source of income. It's pretty obvious that no company can survive for long without any customers.
How to distinguish a Pyramid from an MLM
|°< d> ||In MLM, it is possible for a recruit to overtake person who recruited them, and end up making more money than them< d> ||In a pyramid scheme, your place in matrix is fixed. You cannot overtake your sponsor. Even if they do nothing after recruiting you, they will still make more money than you.< d> < r>|
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|°< d> ||In MLM, nobody makes any money until there is a sale: company's income derives from its customers, and so does income of company's representatives< d> ||In a pyramid scheme, you are paid bonuses for recruiting other representatives, regardless of whether or not they achieve any sales or gain any customers. Because there is no income to company, sooner or later this scheme will collapse.< d> < r>< able> |
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