Are All MLMs A Scam?
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
Recent Comments
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Great piece Marie: I have known and represented several very successful MLM businessmen. For those at the top of the scheme it is a very lucrative business but those FEW work really hard at it. For those in the middle of the triangle they do slightly better than break-even. For those on the lower third of the MLM triangle...well they think that all MLMs are scams unless they just happen to like some of the products that are sold through the MLM. So it's a toss-up. However it is important to now plug WA Affiliate Program.
After decades of business, several (yes even hundreds) of MLM companies are still in business. How? They keep opening up new markets in other countries or have introduced really decent products that many love. Yet with all the market penetration and bad press they still continue to make large sums of money for the people at the top.
In e-commerce, even with the millions that are trying it and yes succeeding in the business, there is still a very low penetration of what the market will bear. There is still unbelievable room for new e-commerce people to make very good money. But those that succeed will work very hard to make the money that they make. Just like any other successful business venture. DAN
Hi Marie, I prefer to call MLM a scam or a legitimate business plan.
There are many scams using MLM. When there is no product, pressure to buy, a monthly minimum etc.
There are also many scams that surround Web site building but that doesn't mean WA is bad. Quite the opposite.
I am a distributor in a very good MLM company that I plan on introducing some time in the future, as I am busy on my current sites.
It is affordable, has quality products, an opportunity for all, no pressure to sell or minimums at the entry level. You can just join for discounted use. The only down side is that it is only available in the U.S.
It has been in business for 20 years.
Have a great New Year,
Marty
I agree with your first and third paragraph but would like to comment on your second paragraph.
In most business models the majority of the profits go to the top I.e. CEOs and executives and higher level management.
Also, in any business, retail, banking, car dealerships, insurance, real estate, engineering, doctors, lawyers, and even WA, if the model stops bringing in new people it will collapse.
Every business needs people to run it. If recruiting wasn't important than why do companies hire other companies to recruit for them or they have their own team to do so internally.
But in those places we as people, usually have a job and are not the business owners....but when you own a small business, you are the CEO, the salesperson, the marketing team, the administrator, the janitor, and yes, the recruiter.
I share this from personal experience. I had my own small biz within a network marketing or MLM for 5 years. 3 1/2 of those years my wife and I were full time, it was our sole income. I was able to get a "degree" in business very hands on.
I am a big fan of the right MLM but I encourage folks to learn online affiliate marketing, learn how to drive traffic to your promotion or website, then if you want to pursue an MLM that you are passionate about, then go for it.
I am writing a 3 part series on my website on Affiliate Marketing vs. Network Marketing. I have part 1 and 2 done if you want ant to read more in depth on the differences. Part 1 is below:
http://bestonlinemarketingsystem.org/affiliate-marketing-vs-network-marketing-part-1
It's not an affiliate link.
I hope some of this helps. If you have any other questions feel free to reply back to this thread or even PM me! ;-)
Cheers! ;-)
Thanks Jason, I appreciate if you are managing the scheme yourself then you are at the top and some MLMs do promote this model and allow you to run your own independent business, which as you say can be very profitable in the right hands.
The difference in recruitment for a pyramid scheme or MLM scam is that the momentum of recruitment is the ONLY thing that is keeping the system afloat because there are no other sales occurring. This is where it is different to many businesses including WA, because most businesses are selling a legitimate product which is actually the source of the revenue.
One of the things to consider with any venture that involves MLM techniques is what role does recruitment have in the process? If there are products and you can run your business using these then that has the making of a successful business, especially when combined with other income sources. However the red flag is when recruitment becomes the only way that you will gain an income because long term this model isn't sustainable.
Marie, what is an "MLM scam"?
Are you saying that all MLM's are scams or are you saying that some scams use an MLM model? If it's the former, that's just not true and if it's the latter it's just a scam.
Also you say that there are no other sales occurring outside of recruitment and that the ONLY thing keeping them afloat is more recruitment.........you simply could not say that about Avon as just one example.
With all due respect to you, you've made several sweeping inaccuracies that I feel you should either change or retract.
Mark
MHainsworth, my comments are not toward your reply. I agree with you. There is a difference in an MLM and a pyramid scheme.
A Pyramid Scheme defined by Wikipedia is ...a business model that lures members via a promise of payment or services for enrolling others into the scheme, rather than supplying any real investment or sale of products or services to the public.
https://en.m.wikipedia.org/wiki/Pyramid_scheme
So your reply, I agree with, but within the second paragraph of your second reason you also include Avon, as if you are implying that Avon is a Pyramid Scheme. I am not the only one who read it that way either. Down below, Mark1957, also points out this implication.
So my question is, are you saying Avon is a Pyramid Scheme?
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.
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.
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
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.
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
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.
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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I know you wrote this ages ago, but I'm pleased I came across it, as it finally cleared my ideas on the difference between MLM and pyramid schemes. Thank you :)
Giulia
Hey Giulia, you should check out the info in the video on a recent post of mine. It gives you the clues to look for in spotting pyramid schemes.
https://legitimatejobfromhome.com/is-your-mlm-a-pyramid-scheme-how-to-easily-know/