How many times have network marketers heard this question? Most people are unaware of the differences between a true pyramid and the popular belief that anything that appears to multi-level marketing is actually a Ponzi or pyramid scheme. Basically, most people assume any business that promotes recruiting others and in doing so the person is compensated is usually seen as a pyramid scheme. A legitimate network marketing or multi-level marketing (MLM) pyramid has the distinction of being a business that involves a product, compensation for the use of the product and commissions for building a team of distributors.
A pyramid is an organizational structure in the shape of a pyramid which shows where the people at the top make more money than those at the bottom. Basically, this definition describes every business in the world which includes the church and the armed forces for example. The problem with the company concept as we understand it, is that the CEO or owner of the company makes the most money from the efforts of each employee in the company. However, the kicker is that the employees do not have the same opportunity to earn as much or more than the CEO. Thus, the top of the pyramid consists of the people who are paid the most, whereas the bottom of the pyramid consists of those who are paid a set wage in exchange for their time.
In Network Marketing, one builds an income from the production of everyone in their organization. It’s a team concept with the sponsor and sometimes the upline act as coach. When everyone works together, it’s like a sports team that wins when they effectively play together as one, but where everyone benefits. One builds an income from the efforts of everyone in their organization or team whether you sponsor your team members personally or not.
Each person in the network marketing organization can do the same as their sponsor (CEO in a conventional business), but in this example, the recruit can make the same or more money than their sponsor or upline based on their own efforts and the work from their team members who happen to be part of their organization. This creates a situation where everyone has the same opportunity to make a lot of money. Network marketing is a fair and honest system because people are compensated on their efforts and not their ranking within an organization.
Ponzi or Pyramid schemes come in many forms that at times are difficult to recognize from the legitimate network marketing model. In some cases the pyramid scheme attempts to imitate network marketing in that distributors are compensated on a multilevel structure to market the business opportunity to prospects. However, the difference is that pyramids focus primarily on recruiting new distributors, not on selling products or services. In fact, in most cases there usually is no product or service. Some schemes purport having a product or service, but they simply use this to hide their pyramid structure.
The most obvious way to discover a Ponzi or pyramid schemes is to study the purpose of recruiting others into the business. If the focus is solely on recruiting for the collection of fees, get rich quick promises with no product or service in sight and most importantly, the sponsor of these people is not compensated for their recruitment efforts…then you have a true Ponzi or pyramid scheme. In the typical Ponzi scheme, no real business opportunity exists. The owner uses the money collected from new recruits to pay members already in the program. The expression robbing Peter to pay Paul sums up the intent of the Ponzi or pyramid scheme.
There are two ways to determine if a product or service is being used to disguise a pyramid scheme: First, when distributors have to buy products that cannot be reasonably sold. Secondly, if the company lacks retail sales because the only people buying the product are the distributors and maybe a few of their friends and family members.
Network marketing works. The foundation of a MLM business model is that the investor share their products and services within the marketplace and the business opportunity with others. This is not only being down with one on one contacts, but through the Internet, conference calling and online business overviews to name a few in an effort to spread the network to more people instead of the business owners circle of influence.
Network marketing or MLM is a legitimate business model. It is a proven system that works where distributors provide products and services at competitive prices in the marketplace, bring others into their organization and teach them how to create wealth for themselves and those they bring into their organization. In other words, a network marketer can be successful if they can effectively duplicate themselves.
Janice Willingham is an experienced network marketer who is part of the MLM 95%.
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