Are All MLMs A Scam?

Last Update: December 31, 2015

MLMs or Multi Level Marketing schemes tend to get a lot of publicity (usually bad!) but I was wondering whether that is everyone's experience.

I have been reading several reviews of different MLM schemes both within WA sites and also outside, and I have seen people focusing on certain aspects of them - like really good products, but not mentioning any of the other aspects associated with MLMs that can cause problems. I have even read reviews that have completely misunderstand the company they were reviewing and didn't even realise it was an MLM structure.

What is Multi-Level Marketing?

For those of you who are not sure what an MLM is - basically it is a scheme that has products that you access, although in many cases these have to be bought from the company first. Then you make a commission on the sale. However you also recruit new members into the scheme and you will receive a commission for each new recruit.

What differentiates it from affiliate programmes is that you also receive a commission from each sale or recruitment made by any of your recruits. It works like a pyramid structure your recruits are lined below you and then their recruits are lined below them. You end up at the top of your own mini pyramid, whilst you are part of other people's pyramids above you.

The Difference Between a Pyramid Scheme and a MLM?

There are those that will say there is very little difference, other than pyramid schemes are illegal in many countries. They operate in the same way as a MLM but they don't have any products it is purely recruitment based.

Research would show that even within the largest MLM schemes such as Tupperware and Avon which are frequently used as positive examples, the potential to earn large amounts of money (which is often what is advertised) is next to impossible because of the nature of the structure. (i.e. 70% of all funds will be paid out to the very top layer which is usually the founding group). Once recruitment stops the scheme collapses.

Is Wealthy Affiliate an MLM?

I know this question has been asked a few times but no it isn't for a couple of reasons. Firstly there are no products to buy, it is a training programme (and web hosting service), which you pay to access. You don't sell this product onto anyone else.

Secondly although it has an affiliate referral programme this is completely voluntary and independent to the monthly fee and the training material that you access. Finally each member you recruit becomes their own business and you don't receive any commissions for anything related to the work that they do, or any recruits that they bring into WA.

Finally the funding structure of WA is sustainable i.e. you won't lose all your money if you fail to bring in any affiliates of your own to WA.

I know it is a highly controversial subject but with new members joining WA all the time it is probably no harm to chat about it again.

Thanks, Marie

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ZeeA Premium
Hi Marie,

If we put aside the marketing method and sales pitch, I wouldn't really generalize a business model as a scam unless it really has no value offers to the customer. However, I personally never like their income scheme. Like you say, those who really make a fortune are only those who are on top of the chain. I'm not comfortable promoting something like that. And of course, WA is a truly different thing.
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MHainsworth Premium
Hi Zee it's a good point about generalising and you are right we shouldn't! It does seem to be a phrase that is constantly linked to MLMs though and I think it's good to unpick each scheme for what it is offering and what the potential pit falls might be.

Like yourself I wouldn't promote any scheme I didn't know about which is why I do appreciate those members who are involved in any MLM to share their views on their own scheme.
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JamesBB Premium
HI Marie,
I dont believe MLMs are scams anymore than some online programs are scams. I belong to an MLM group as well as affiliate marketing and they are both very different businesses. But as you say - they are often associated with scams or pyramid schemes. The reality is that there ARE some MLM type businesses that are pyramid schemes and are illegal in most countries. The other reality is that most traditional company management personnel charts also have a pyramid structure, as do legitimate MLMs.... so its just a hierarchical form in these cases.
Thanks for your post ... I get the same questions a lot so its great to have others perspective !
Happy new year !
James
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MHainsworth Premium
Hi thanks James I appreciate your comments as I think it is an interesting subject.

I think because it is such a complex area, then it is important to have a thorough understanding of just what you are committing yourself to, I know many others that have combined affiliate marketing and MLM sales and it has worked out fine for them as well.
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Mark1957 Premium
Multi Level Marketing/Network Marketing is a legal method of doing business whereas Pyramid Selling is not.
An interesting blog although the last sentence in the paragraph titled "What is MLM" is misplaced, it should come under a paragraph explaining what Pyramid Selling is.
If somebody gets a commission simply for gaining a new recruit into the scheme, it will be a Pyramid.
True, legal MLM/NM schemes will never pay a commission to a member simply by recruiting a new member, it will always be a case of recompensing members for sales achieved of products or services.
The term scam is an emotional one and will be bandied around mostly by people who feel they have been burned when trying to make a go of an MLM they were in. If they failed it's a scam, if they prospered, it's legit.
Mark
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MHainsworth Premium
Hi Mark thanks for the input, I suppose I was trying to differentiate that although all MLM schemes are pyramid selling schemes not all pyramid schemes are MLMs.

Although many MLM schemes will sell the idea that it is just the work and effort that will provide the results, research has clearly shown that your position within the structure also plays a key role and unfortunately some people are too far down to ever make a successful living from it, that is the nature of MLM schemes.

The real message Is probably to do the reading and research on each scheme, like you said not everyone who calls something a scam has good reason to do so, so dig deeper and find out exactly what the company is selling and what they are expecting in return.
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Mark1957 Premium
Hi Marie,
I'm not sure that Avon, Forever Living and all other legal, legitimate, multi $billion, global Multi Level Marketing Companies with millions of distributors and customers would be at all happy at being referred to as pyramid selling schemes.
You might as well call the Catholic Church, large companies and governments etc. pyramid based organisations as they have one person at the top, a few more at the next level, many more at the next level and maybe thousands at various levels below that.
In essence, most large organisations look like a pyramid if you use that analogy but that doesn't make them Pyramids.
As for most of the money going to those who get in first and new members never having the chance to progress because they are too far down, I'm not sure that's entirely true either.
If you take a new company that offers a "ground floor opportunity" and burns brightly for a year or two before burning out then it stands to reason that the people who were founders will be the only ones who make money......it will most likely be a pyramid in any case.
However, if you do your due diligence and eventually choose a mature, reputable company like I mentioned above, there is no detriment to joining after others. In fact, it's quite likely that their all time record earners haven't even joined up yet.
Cheers
Mark
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bnaylor Premium
Great post Marie... There are a lot of misconceptions out in the marketplace in general about Network Marketing and MLMs... It's like anything else on the Internet... There are good ones and there are bad ones...

Network Marketing as a whole is a great way to earn a very healthy income... However it's absolutely not for everyone... It takes hard work and a certain type of person to be successful... Thanks for the explanation and explaining this to members here... I think more folks would benefit from understanding the real facts about MLMs... Bryan
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MHainsworth Premium
Thanks Bryan it is such a minefield area and I think it is a market ripe to take advantage of unsuspecting people.

I think once you know how the structure works and what this actually means for you then you are better placed to make a decision that suits your needs.
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bnaylor Premium
I would agree Marie... It's not for the faint of heart... That's why if anyone is interested in looking into whether this business model will work for them or not, it's always best to find a mentor you know, like or trust to help navigate the waters... I never would have gotten into Network Marketing without a mentor... In fact if you haven't read the post... Fyre (another member here) wrote a great post on mentoring in general that you might want to read if you haven't yet... The link is
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JamesBB Premium
Hi Bryan,
I agree what you say about it not being for everyone. I struggle with it a bit even though I have a sales background, It is a very personal business. A lot of people also think that it is supposed to be easy money, but reality is it is a business and requires dedicated input - as does affiliate marketing.
cheers
James
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bnaylor Premium
Hey James... That's one of the common misconceptions of Network Marketing... All you need to do is recruit 3, who do the same etc., etc., etc. and that's patently false... If that were the case, we'd all be driving Ferraris...

In fact I wrote a post on my website just last night on Why Network Marketing and 4 Reasons To Do Network Marketing (and Top 4 Reasons NOT To)...

It's a "high touch" model where you need to be able to mentor and support people along with making sure you have the right systems in place to help with duplication to get people up the curve quickly...

But you're absolutely right... it's no different from Affiliate Marketing in terms of the amount of effort, just different... Bryan
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JudeP Premium
A great explanation, thank you. All the best for 2016 and beyond :)
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MHainsworth Premium
Thanks Jude and same to you, hope 2016 is a good one! Marie
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