Network Marketing vs. Pyramid Schemes

Many people today do not understand the difference between network marketing/multi-level marketing and pyramid schemes. I believe it is important to understand the difference especially if you are considering joining multi-level marketing company.

Pyramid Schemes

According to the U.S. Securites and Exchange Commission a pyramid scheme is

• Where people make money only by recruiting others into the company.
• Promise of enormous returns in a short period of time.
• Have no product or no legitimate product for sale.
• Illegal.

http://www.sec.gov/answers/pyramid.htm

Network Marketing/Multi-Level Marketing

According to entrepeneur.com network marketing is

• Where people make money by only by selling goods and services.
• Encouraged to recruit others, but not required.
• Usually requires a small upfront investment.
• A legitimate business model
• Legal

http://www.entrepreneur.com/encyclopedia/term/82564.html

Similarities

Those involved in pyramid schemes are compensated in a multi-level fashion.

Pyramid schemes always require an upfront fee. Network marketing usually requires and upfront investment.

Differences

Pyramid schemers are required to recruit others to make money. Network marketers make money only when they sell the product or service.

Pyramid schemes require that you pay to get in, but this money only goes towards the person who recruited you. In network marketing the upfront investment always goes towards a product kit and/or training supplies.

Pyramid schemes are illegal and usually collapse within the first few years. The only known scam that has ever made it on the NYSE was  Bernard L. Madoff Investment Securities LLC. Network marketing companies last much longer and many are publicly traded on the New York Stock Exchange including; Herbalife (HLF), Pre-Paid Legal Services (PPD), Avon (AVP), Tupperware (TUP), and many more.

What To Look For In Any Business

Not all network marketing companies are going to give you the wealth you are looking for. Harvard Business School listed the five most important things to look into before joining any company.

1. The Company

How long has it been around? Who is running it? Is it publicly traded?

2. The Product/Service

Does the company have a good product or service? Is there competition between other companies with the same product or service?

3. The Need

Does the product fill a need in the marketplace? How many people already have the product/service?

4. The Compensation

Does the company pay you enough to pay attention?

5. The Timing

What is the market penetration? When will the company hit critical mass? Have you already missed the opportunity?

Tim Sales on Multi-Level Marketing

Tim Sales has made millions of dollars in the network marketing industry. I believe this video is relevant to those who still have questions about how it works and how it compares to a regular job.

http://www.youtube.com/watch?v=PvDkPfaWsfk&feature=related