What is MLM?
MLM stands for Multi-Level Marketing. It is also known as affiliate lead marketing. You get commissions for every sale you make, as well as from the sales made by people you recruit into the MLM network. Some affiliate programs are MLMs. This is when you hear about “two tier commissions on sales” and the like.
Many people believe that all MLM networks are really just pyramid scams. However even though we are not via MLM supporters, we believe that legitimate MLM networks do exist that are not pyramid scams. But you have to learn to tell the difference between the two.
What then is a pyramid scam and how does it differ from legal affiliate lead marketing?
A pyramid scam is an illegal business scheme in which people join in the business as recruiters, and get paid for enlisting new recruits. The commissions are usually high, so the recruiters as well as the recruited are enticed to find even more recruits.
When a person is recruited, they are required to invest in the pyramid business. The money that those on the top level of the pyramid get is largely taken from these investments made by recruits on the lower tiers. When no more people can be recruited (and this is bound to happen sooner or later no matter how cool the scheme appears to be), the pyramid collapses, the masterminds disappear, and people lose their money.
Since the original pyramid builders are gone, it is impossible to get back one’s capital investment unless these criminals are caught. Often the lower-tier recruits/recruiters turn to those who had enlisted them and demand their money back. But the latter are often victims as well. If they profited at all from the pyramid scam, they would have to use the money to appease their recruits. In this way, they all lose.
As you can see, pyramid scams resemble MLM network or affiliate lead marketing. And this is what gives MLM networks a bad rep.
How can I tell the difference between a legitimate MLM and a pyramid scam?
What makes the difference is that in a lawful affiliate lead marketing or MLM network, the emphasis is on the SALES of products, not the recruitment of new members. Legitimate MLM networks give commissions to recruiters only from the sales made by them and sales made by the people they recruit. With pyramid scams, the main source of income is the recruitment itself.
How can I avoid pyramid scams?
The first thing to look at is how they recruit you. Is the supposed MLM selling the product to you, or the affiliate program? It should be the former.
Do they make extraordinary, “get rich quick” claims? Pyramid scam.
Are they transparent about their business? Ask for company history and business credentials. Don’t be afraid to be rough. This is your money. Investigate on your own. If it’s a legitimate affiliate lead marketing program, they have nothing to hide.
What is their web ite like? We found one affiliate lead marketing site that claims to be a mega company with some 1,500 employees in 85 countries (!) and offering huge profits via MLM. Yet their web site has tons of misleading links, duplicate articles and signs of keyword stuffing everywhere. If they can’t be honest with even a web site, why should you trust them with your time and money?
If you do find a legal MLM, get ready to work hard. Be realistic about money. You won’t be a millionaire, period. And above all, be responsible. Protect yourself and your recruits. Make sure you know what you’re doing.
Guest Post Contributed by Karl. He likes to share his thoughts regarding small business financing.