With many people seeking to start their own businesses or increase their streams of income, multilevel marketing (MLM) has become more popular than ever. However, critics often call MLM pyramid schemes, siting the lack of actual ownership and the need to recruit others in order to earn substantial profits. So what’s the truther? Let’s discuss.

Ownership

Many critics of MLM point out that even if the additional stream of income is attractive or the product being sold seems marketable, participating in MLM does not offer business ownership. Instead, each person involved works as a distributor. They sell a product owned by the company through direct sales efforts. Each distributor earns commissions from their sales. The more you sell, the more you earn. However, you do not actually have any ownership in the overall business.

Structure

Companies that utilize an MLM strategy are structured like a pyramid. Each distributor is encourages to recruit other distributors. The incentive to do so is usually a commissioned earned off of the recruited distributors’ sales.

Sales

Most MLM opportunities require the selling of products (think Mary Kay, Nurtrilite, or many of the weight loss tea companies we see pushed on social media). However, there are also MLM structured companies who also sell services (Primerica and Asirvia are great examples). Whether product or services based, what drives MLM’s is sales.

Costs

Almost every MLM requires startup costs, especially those selling products. You must purchase the inventory you are selling. There are also oftentimes fees associated with travel, marketing, and other promotional efforts. These costs are not covered by the company, but by the distributors.

So is Multilevel Marketing synonymous with pyramid schemes?

Technically no. The difference between the two is legality. Pyramid schemes often compensate greater for recruiting than sales, which is against the law. However, many of the pitfalls of a pyramid scheme and MLM are the same.

The verdict:

Beware.Not to take away the perceived success some have experienced by participating in an MLM, but it can be argued that the same effort and money spent on getting establishing in an MLM and turning it into a profitable stream of income could be better spent starting your own business or investing in one.