Are you wondering what separates network marketing form a so called pyramid scheme? Many people use these two expressions on top of one other, but this is a big misunderstanding. Multi level Marketing or MLM is other words of Network Marketing. Don’t be confused by the words meaning, they represent the same and must not be confused with pyramid schemes.

Serious Network Marketing companies have more than once been accused of running with this so called pyramid schemes. The first impression for many people when introduced to Network Marketing is: “This is a pyramid scheme!” This is part of the reason that there are similarities between network sales and part because those who run pyramid schemes often claim to be doing Network Marketing.

A trap?
Another widespread misunderstanding is that Network Marketing is something you allure people into to make money on these people. This would perhaps be the appropriate description of a pyramid scheme, but in Network Marketing the purpose is not to push or allure people in, and you do not make money of that person. If you have 100 people in your organization that are not buying anything, you don’t make any money. If you have 100 people in your organization that shop a lot of products from the company, then you make money. You make money on products like any other companies and not on recruiting. Not everyone wants to recruit distributors into their Network Marketing companies. These people have the opportunity to be a costumer and buy products directly from the company.

In a pyramid scheme the member’s income depends on how many members that joins within the pyramid. They are lured to pay an amount and are promised quick money without doing any real effort. These pyramid schemes are illegal in most countries, but there are few countries that have regulations that make it possible for the men behind the pyramid scheme to get condemn in court. This has lead to a flourish of pyramid schemes around the world.

Similar possibilities
The build-up of a Network Marketing company is in many cases similar to the build-ups of pyramid schemes, but the two must not be mixed up! One of the things that make Network Marketing special is that everyone has the same opportunities in building their business thanks to a very simple franchise system the companies have. The person on the top does not make the majority of the money, like in most companies. In Network Marketing a person can start and make more money than the people above him or her in the network. It’s probably not so easy for a worker to make more than his or her employer!? How much every person makes depends of that person’s effort in Network Marketing. This makes Network Marketing very equitable and of that reason called “franchise of the people”.

How to separate serious Network Marketing companies from unserious and illegal pyramid schemes?

DSA has put up 10 points that separates Network Marketing from a illegal pyramid chemes: (The following points describe a pyramid scheme)

· Provisions are paid for recruiting of new distributors and not base don product sales

· It is possible to buy yourself into positions to attain rights

· The company has no or only symbolic products for sale

· The possibility to lose bigger amounts to the company is present

· The starter kit/entrance fee is often disproportionably high

· Distributors have no or very bad return of investment
· The company demands you to participate in disproportionably expensive courses or to buy expensive prints

· Distributors can not quit any time without paying a punishment fee

· The flow of money runs upwards in the system
· Leaders talk about earning a lot of money in a short time without any real effort

Consumer reports suggest that you use healthy reason and take to heart the following seven tips before you sign any agreement:

· Be sceptical to enter deals with companies where part of the business consists of recruiting new distributors. These can be running illegal pyramid sales.

· Be sceptical to businesses that involve new distributors to buy expensive equipment. Be aware that this business can break down and be a badly camouflaged pyramid.

· Be sceptical to businesses that promise you income through commission of sales your new distributors you recruit instead of your own sales.

· Be sceptical to businesses that claim to sell miracle products or promise a enormous merit. Just because the company claims is, does not make it true. Ask for documentation that supports their claims.

· Be aware of ”decoys”. People that pose out and claim great success trough the company.

· Don’t pay or sign any contract in the ”opening meeting”, or in any pushing situation. Insist on using the time you need to think about joining.