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The Fine Line Between MLM and Pyramiding

By Ronald Hudkins

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Published: 11Mar2008
Word count: 865
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According to Wikipedia, the free encyclopedia "Multi-level marketing (MLM) businesses (also known as "network" or "matrix" marketing) function by recruiting salespeople to sell a product and offer additional bonus or sales commission on the volume of other salespeople they recruit, commonly known as their "downline". New joiners may be required to pay for their own training / marketing materials, or to buy a significant amount of inventory. Thus it is possible that an MLM may be considered a pyramid scheme if salespersons are more concerned with recruiting a downline or if they must buy more product than they are ever likely to sell."

The encyclopedia further goes on to state, "A commonly adopted test of legality is that MLMs follow the so-called 70% rule which prevents members "inventory loading" in order to qualify for additional bonuses. The 70% rule requires participants to sell 70% of previously purchased inventory before procuring new orders. There are however variations in interpretations of this rule. Some attorneys insist that 70% of purchased inventory should be sold to people who are not participants in the scheme, while many MLM companies allow for a significant part of the sales of a participant to be to themselves for their own use."

A pyramid scheme they go on to state is "a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. It has been known to come under many guises. Pyramid schemes are illegal in many countries, including the United States, the United Kingdom, France, Canada, Malaysia, Norway, Australia , New Zealand, Nepal, Sri Lanka and Iran. Where these types of schemes have existed for at least a century."

The Federal Trade Commission cannot tell you whether a particular multilevel marketing plan is legal. Nor can it give you advice about whether to join such a plan. You must make that decision yourself. However, the FTC suggests that you use common sense, and consider these seven tips when you make your decision:

1. Avoid any plan that includes commissions for only recruiting additional distributors. It may be an illegal pyramid.
2. Beware of plans that ask new distributors to purchase expensive inventory. These plans can collapse quickly -- and also may be thinly-disguised pyramids.
3. Be cautious of plans that claim you will make money only through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- rather than through sales of products you make yourself.
4. Beware of plans that claim to sell miracle products or promise enormous earnings. Just because a promoter of a plan makes a claim doesn't mean it's true! Ask the promoter of the plan to substantiate claims with hard evidence.
5. Beware of shills -- "decoy" references paid by a plan's promoter to describe their fictional success in earning money through the plan.
6. Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or lawyer.
7. Do your homework! Check with your local Better Business Bureau and state Attorney General about any plan you're considering -- especially when the claims about the product or your potential earnings seem too good to be true.

There are millions of people worldwide that desire to have their own businesses however, do not have the initial start up capital for a storefront, inventory or funds to compensate for sustainability issues. A great way to test your individual ability to operate and succeed in a home based business is to find a great (legitimate) MLM opportunity. But, like any business you venture into be smart about your choices.

My personal recommendation is to know yourself first. If you are not a take action, persistent, motivated and confident person, I wouldn't recommend starting your own business. You'd best serve yourself working for someone else willing to pay you for your physical or mental abilities. A business doesn't sell itself and there is a lot more to success then just wanting to open the retail doors.

If you have the confidence but limited finances, put one toe into the business world at a time to see what you are made of. Find an MLM program that offers training, mentorship, products, services, WebPages, pre fabricated advertising mediums, advertising sources, customer support and that process, ships and delivers their own goods and services. You would be best served with a program that does not require purchase of large amounts of their inventory.

The trick here is to glean all the experience necessary to succeed in sales. Like it or not every business requires sales, customer and employee coordination, advertising budgets, book keeping and a whole lot of other coordination's to succeed. Don't let your desire to be an independent success get ahead of your business abilities. There are many thousands (by now millions) of people running successful home business. You can too, just don't let yourself get railroaded into the MLM programs out there that require high start-up investments.

Ronald Hudkins is a successful Internet entrepreneur that is highly capable of mentoring affiliate success. He is an affiliate executive in SFI's home based business opportunity and seeks action orientated people to join his ever expanding team of Internet marketers geared to learn and earn. To join Team Venture go to http://www.adultwishfoundations.com/free.html

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