Isn’t MLM a Pyramid Scheme?

pyramid schemes

“Isn’t this a pyramid scheme?”

In the network marketing industry, also known as the MLM industry, this question comes up frequently.

If you have been in Network Marketing for a while, and you have faced this question for the umpteenth time, this is how you might feel….


pyramid scheme


However, when you present your network marketing business opportunity to someone, and they ask you, “isn’t this a pyramid scheme”, know this: it is a good question! And it’s a very legitimate question as well.


The reason it’s a good question, is because most of the time when network marketing is explained, a diagram is used looking similar to this:


network marketing


Now, when you compare this diagram with what a true pyramid scheme looks like, you will understand the confusion in your prospect’s mind and you will realise that his or her question, “isn’t this a pyramid scheme”, is quite legitimate. This is what a typical pyramid scheme looks like:


typical pyramid scheme


Definition of a pyramid scheme:
A pyramid scheme is inter alia defined by Wikipedia, The Pyramid Scheme Federal Bureau of Investigation and Debra A. Valentine in her article on “Pyramid Schemes” for the United States Federal Trade Commission as follows:

“A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.”

In other words the real profit is earned, not by the sale of the product, but by the sale of new distributorships.


The Real Problem is not the pyramid shape

The problem therefore is not the geometrical shape, or the so-called pyramid shape of the structure. As a matter of fact, this is the strongest structure known to man and is replicated all through life – from government organizations, schools and corporations. Look at this:


legitimate pyramids


If you have been working in a standard business model, where you slave away 8 hours or more a day, just to be underpaid for your services (like in all businesses, as they leverage off of your efforts to make profits for the company), you might appreciate this picture:


pyramid scheme

In the above legal pyramid scheme, who is getting paid the most and who is getting paid the least?

Do the employees on the bottom have an opportunity to earn more than the people above them?

The answers to these questions are quite obvious and should hopefully serve as an eye opener if you are trapped in one of these legal pyramids where you have no prospects of improving your financial future.

At least with network marketing, everybody gets the same opportunity to create wealth through leverage, not just those who got in first, like with normal corporations.


The true test of a Pyramid Scheme vs Network Marketing is this:

Is there a product or service of real market value?

If not, it’s most likely a pyramid scheme!

Are you getting paid for recruiting new members, or are you getting paid when a product or service of real market value is being sold?

If you are paid for recruiting instead of the sale of marketable products or services, it’s most likely a pyramid.


For a very good article comparing Herbalife to pyramid schemes, see Herbalife Pyramid Scheme…..Get Rich Quick Scam.


EZHealthBiz Training Tuesday Video:

How to answer the “Isn’t this a pyramid scheme?” question in Network Marketing.


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Leave A Reply (2 comments so far)

  • travisimo

    Actually mlm has a higher failure and loss rate than straight up gifting circles. Nobody makes any money selling junk product. The only money that can be made is through recruitment, and only a few people can do this due to simple math.

    • Travisimo, your lack of understanding of the mlm or network marketing business model, is probably caused by your lack of knowledge of all the facts. If you do your due diligence, you will realise that all legitimate business models must have a product or service of value, for which there is a demand in the market place. That’s just from a legal point. In the end, the proof is in the pudding. If a MLM business have lasted 10 years or more, they are obviously doing something right and there remains a growing demand for their products. By the way, any business that pays you for recruiting is an illegitimate model or scam. Most of the consumer laws world wide now specifically states that if you get paid for recruiting people, it’s an illegal scam. In Herbalife you do not get paid one cent when you recruit a new member. You might in future earn wholesale and royalties from the production of that person (and production means products that moves from company to end consumer, not recruiting). The more effective you lead and train the people that join your network, the more money they will make for themselves, and only then will you be able to earn of their efforts..but only if you are also working (producing). No place for couch potatoes or get rich quick seekers. If you work hard, you will get rewarded. If you don’t, then you won’t.

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