What is a Pyramid Scheme (and what is not?!)

“A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.” (taken from Wikipedia)

Often you hear people wrongly call multi-level marketing, or direct sales schemes pyramid schemes.

What I think are the 5 main differences between a Pyramid Scheme and an MLM

1 Overall Profit

The big difference is that any commission paid to team leaders in a direct sales scheme is from the profits that the overall company makes from selling a product (or service) and not directly from any sign up fee.

2 Shareholders

Compare that with your typical shareholder owned company where any profits made by the worker go directly to shareholders. The worker usually earns a fixed wage, most probably gets no overtime and rarely receives a bonus for any extra sales or revenue generated. Whereas the shareholder will get their share of the profits with very little input into developing the worker’s role. (Now that sounds more like a pyramid scheme to me – and certainly doesn’t seem fair!)

3 Bonuses

In a direct sales business you have the same opportunity to make profit on the goods/services you sell as anyone else in your upline or downline. You can usually earn further bonuses if you sell certain amounts and it’s your choice to do that. Work hard and you can earn the bonuses. Choose to do it as a hobby and make some pocket money, the choice is yours but the money you earn comes from what you sell.

4 Team Building

In addition you can make commission based on having other people in your team who also sell. The commission does not come out of their pay packet. The profits of the company make up the commission scale. In other words you get the shareholders cut. But only if you work hard do you get this reward – seems fair to me!.

5 Rewards for effort!

Mentor and support your team and they’re more likely to blossom. They’ll make more profit from more sales. They may well start building their own teams and you’ll get commission as a reward for working hard and supporting them.

 

 

PS – I love being in direct sales and if you’d like to know more about what I do then you’ll like Can I make money at this?