How to distinguish between MLM and Pyramid Schemes.

Thought that this is meaningful so i drop it down.

Sources: http://www.wikihow.com/Distinguish-Between-a-Pyramid-Scheme-and-Multi-Level-Marketing

Pyramid Scheme

1. 1
   Understand the definition: A pyramid scheme is a non-sustainable business that involves the exchange of money, usually in the form of a sign-up fee, and usually has no product or service.
2. 2
   Know that pyramid schemes are ILLEGAL! The only people that are able to make money on a pyramid scheme are the people at the top of the pyramid.
• The above picture proves that pyramid schemes are unsustainable. As stated above, because pyramid schemes offer no product or service, no possible way exists for the people at the bottom of the pyramid to make any money. The only way to make money in a pyramid scheme is to sign-up new members for a fee. However, as the above picture shows, this becomes impossible when the scheme reaches a certain level. The end result is that people can spend upwards of several thousand dollars to enroll in one of these scams and will end up losing everything.

Multi-Level Marketing

1. 1
   Understand the difference. Multi-level marketing companies follow a similar concept to a pyramid scheme, which is a reason for most of the confusion, except that two significant differences exist.
• One difference is that members at any level of a multi-level marketing model can make income through the company’s products and/or services without signing up any new members.
• The second difference is that members of any level in a multi-level can advance past the people who signed them up.
• Finally,multi-level marketing companies are LEGAL!

Understand why. You may be asking, “if all the confusion, why then do these companies initiate this business model?” The main reason for this type of model is to reduce the cost of advertising. We can all agree that effective advertising in this day and age can cost a bundle. Many new companies do not have this much capital in the beginning. Therefore, one solution is to reward the company’s members for “spreading the word.” Instead of the company spending hundreds of thousands or even millions of dollars on advertising, the company gives the members an incentive, usually in the form of money, for signing up new members to sell/use the company’s product and/or service.

• Unlike a pyramid scheme, any member on any level can make money without ever having to sign-up a new member. However, like a pyramid scheme, once the company reaches a certain population level, it becomes impossible for any new people to sign-up. Therefore, the people at the bottom cannot make bonuses for sign-ups, but they will still be able to make money based on the company’s product and/or services.

• Pyramid schemes offer money for simply recruiting people. This money can come as a commission from the sale of a starter kit or as a recruiting "bonus."
• Avoid any MLM that puts much more emphasis on recruiting salespeople than selling the actual product.
• Pyramid schemes charge steep startup costs for joining, including mandatory training, a starter kit and a non-refundable membership fee.
• Beware of any MLM that allows five or more levels of distributors to collect commissions on a single sale.
• Make sure that the products being sold have real value and a competitive price. Are they reputable brands? Have the manufacturers been involved in recent lawsuits?
• Avoid MLMs that only sell lists of sales leads to other MLM salespeople. This is most likely outdated information that has made the MLM rounds several times before.
• Avoid signing up for an MLM as part of a high-pressure motivational event. Consider the information carefully and take it home to think about it.
• Be wary of anyone who tries to sell you on an MLM by flaunting their personal wealth. Realize that many of the people who claim to have made millions through MLM have actually made their money selling books and videos on how to make millions through MLMs.