NetWork Marketing VS. Pyramid Schemes

11/24/2012 09:48:00 PM , 0 Comments

Network Marketing VS. Pyramid Schemes

Let me guess, somebody has just approached you and asked you to join their network marketing business and your instant thought was - is this one of those pyramid scams?

You made the right decision to do some research and be concerned, because pyramid schemes are illegal and can put you in to a lot of trouble. The good news is that network marketing or multi-level marketing is a legitimate and legal business model. On this page we will help you to identify the differences between network marketing and pyramid schemes, including a checklist of things to look for.

                                  -Pyramid Scheme (illegal scam)

In a more practical sense, probably the easiest way to identify pyramid schemes is firstly there is no legitimate product or service involved (ie you do not get a legitimate product in return for your initial investment). The second way to identify pyramid schemes is that you do not get a financial return unless you have successfully introduced a number of new recruits into the pyramid. Basically, pyramid schemes concentrate on the money that you could earn by recruiting new people into the pyramid and generally ignore the marketing and selling of any products or services.

                    -Network Marketing (legitimate, legal business model)

The concept behind network marketing is a distribution model that allows a company to sell their products directly to the consumer. Choosing to use a word of mouth approach (networking) instead of advertising through traditional streams (eg media). Therefore instead of paying the media for advertising, network marketing companies are structured to reward distributors through commission in return for selling their products and finding new customers.

-Another big distinction between pyramid schemes and network marketing is the fairness of good maths. To prevent network marketing companies from falling over like pyramid schemes (where people at the top make all the money and people at the bottom lose everything), there are restrictions placed in the network marketing company’s compensation plan that limit the number of people who can earn a commission off any given sale. Basically there are only so many ways you can split a dollar, therefore, network marketing commissions only travel so far. This not only makes the business model sustainable but also makes it fair in the sense that it doesn’t matter if you got in first or last, you have the same opportunity as everyone else.

So in summary, despite the fact that network marketing and pyramid schemes share a few similarities (i.e. the pyramid shaped business model shown in figure 1, and that in both you can recruit new members) network marketing is a legitimate business opportunity and one where you can earn a substantial legal income. You don’t have to take our word for it, network marketing is now being endorsed by a number of leading businessmen worldwide.

“If I lost everything and had to start again, I would find myself a great network marketing company and get to work!”
- Donald Trump (David Letterman Show)

-For your benefit we have put together a list of questions that you can ask yourself prior to signing the dotted line to help you identify a legitimate company from a fake one.

In particular, the following 2 questions:

    Is there a legitimate product involved?
    What do you get in return for your start up investment, other then the potential to earn good money? If you're not getting a product or service or if the training tools appear to be overpriced you could have discovered a scam. For more information about recommend products please refer to the "choosing the right product" chapter.

    Do you get commissions based on product distribution or on recruitment?
    If they are paying commissions based purely on recruitment, walk away now.

Additionally, you should also consider the following factors that might influence long term success.

-Does the company have a proven track record?
If the company has been around for a few years then there is a fair chance that governing bodies that police pyramid schemes have already pulled the business model apart and given them the ok. Publicly traded companies are normally your best bet.

-Is this a get rich quick scheme?
Although there is a lot of potential to earn very good money in network marketing very few have made it quick, most make their millions through consistent effort. So if it sounds to good to be true, it probably is.

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