Is Directing Selling a “Pyramid Scheme”?

by Kevin on July 1, 2012

image courtesy FreeDigitalPhoto.net

Everyone who has every been in network marketing/direct selling before has come face-to-face with that very dreaded question.

Well, what is a pyramid scheme?  I am glad you asked…

A pyramid scheme is a highly illegal business model (if you can call it that) in which people pay in for the “opportunity” to make money on the people they recruit in to the scheme without anyone selling any product.  The people who make money in a pyramid scheme are the people at the top who start it.

You may be thinking that this is the same as network marketing, but let me explain why it is not.

The key difference is that in network marketing there is a product being sold to people who are not in the business.

Any good direct selling company has a compensation plan that rewards their sellers for the results of selling actual products to consumers and for creating a network of others who do the same.  It a purely value based system in the sense that in order to make money, direct sellers have to contribute value.  Sellers get out of the system what the put into it.  I cannot speak for all companies, but in my wife’s company, sellers can make more money and be at a higher level than the people who sponsored them and brought them into the company.

Yeah, but it still looks like a pyramid.

Sure, the hierarchy of a network marketing company does like a pyramid.  So does the hierarchy of any organization.  Whether it be the government, corporations, or churches, they all have an organizational chart that looks like a triangle or pyramid, and in all of those cases, the highest paid people are almost always at the top. As I mentioned, many network marketing companies give people the opportunity to make more than the people who are “above” them depending on the value they produce.

Just because something looks like a pyramid, does not mean that it is a bad thing.  In fact, if you have a few minutes, check out this Youtube clip with a humorous and satirical view on how many people look at the whole idea of whether network marketing is a pyramid scheme.

In closing, if someone tells you that they have a compelling business opportunity, give them a minute of your time.  You can always say that you are not interested.

If you cannot find a product or service being sold anywhere what they are telling you, it might actually be a “pyramid scheme”, but if there is a product or service being sold, this could be a great opportunity.  Just do your research.

Network Marketers:  I am sure that you have had to respond to this “belief” some people have.  How did you overcome it?

Spouses and Prospects:  Has the belief in that network marketing is a pyramid scheme gotten in your way of being more involved in network marketing?

I would love to get your thoughts below.

 

  • Tonya G P

    Great blog! Yes, I have had this question, but I became more confident with my response once I became more educated about the industry. I subscribed to Network Marketing Times. When someone asks, “Is it a MLM?” I smile and say, “Yes, it is, the best in the industry.

  • http://supportyourspouse.com/ Kevin Sanderson

    Hey Tonya! Thank you for stopping by. You are absolutely correct that it is all about confidence and belief in yourself, the industry, and the value of what you have to offer.

  • Tonya G P

    Kevin, it is my pleasure to stop by. I will review more over the weekend. I only wish I knew about your site about a year ago. A friend could have used this type of support. I am just grateful you shared it with me and I will pay it forward
    ! By the way, the magazine name I mentioned before is actually Networking Times. Here’s the link for everyone. :) A must-have for every network marketer.
    http://www.networkingtimes.com/

  • Henry

    Rodan + Fields is multi-level marketing.

    Multi-level marketing schemes are just product based pyramid schemes.

    https://www.youtube.com/watch?v=s6MwGeOm8iI