When you start researching work at home, you'll inevitably find some info on multi-level marketing and pyramid schemes. These two are not exactly the same and it's important to understand the difference because this is territory where you need to step very carefully before getting involved.
Pyramid schemes are illegal. They work something like this:
You're invited to sign up for an opportunity that requires a high-dollar cash investment, possibly as much as $500.
Your recruiter tries to convince you that you'll get your money back and then some by recruiting more people for your downline. Then, you do as your recruiter did and try to grow a downline, getting others to put up money to be part of this pyramid.
A product is not necessarily involved. Pyramid schemes without products are referred to as “naked” pyramid schemes where only cash is exchanged.
If a product is involved, there is little to no focus placed on selling it — the focus is almost entirely on recruiting others to join the “opportunity” and NOT on the product, which in many cases with pyramid schemes is something low-quality that is just there to try and cover up the fact that it's a pyramid scheme.
It isn't really possible to earn a substantial amount without recruiting others.
What Happens to the Pyramid
The end result of a pyramid is that it ultimately collapses and the only people who win and make lots of money are the people sitting at the very top.
Pyramid schemes are actually designed to fail. Therefore, they are illegal. The people on the bottom of the pile almost always lose their investments.
Check out this page on the FTC website for more info on Pyramid schemes.
Multi-Level Marketing is legal, but you have to be careful because many opportunities that claim to be MLM are actually pyramid schemes disguising themselves as MLM. The direct sales opportunities I feature on this site are MLM.
Basically, you sign up for an opportunity where there is a product to sell. You can also make money by recruiting others to sign up to sell the product, but the money comes from their sales of the same product and not just for getting them to sign up like it is with pyramid schemes.
You typically have to buy a starter kit for beginning inventory. With legit MLM, start up costs are quite low — nowhere near the $500+ you might spend on the opportunities that are scams. Anywhere from $50 to $200 is more the norm.
Legit MLM opportunities have a strong focus on their products. For example, Stella & Dot are MLM, but their products are known throughout the world. As a consultant for either of these companies, your primary goal is to sell these products and earn commission.
With legit MLM, earning good money is a possibility even without a downline because you are focusing on selling the product.
You're encouraged to host home parties for displaying the products, and get commission of the sales of the people who do sign up under you, but you don't spend all your time focusing on that.
Pyramid Scheme Warning Signs
Is the opportunity you're considering actually a pyramid scheme in disguise? Here are some things to watch out for:
- Very high start up cost
- No real product to sell
- If there is a product, very little focus is on actually selling it
- Almost 100 percent of the focus of the opportunity is on building your downline
- You're told you'll get rich quick.
- You can't make money unless you recruit people. In legit MLM, you can make money even without recruits just from continually selling the product.
Good luck, and be careful!