Like pyramid schemes, Multi-level marketing companies are dependent on heavy recruitment. It takes a lot of energy and charisma to succeed with a multi-level marketing company.
Succeeding in MLM requires the ability to go into someone’s home, look them in the eye and sell the dream of financial independence while at the same time you know they will only lose money and quit.
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MLM companies make millions and billions because their distributors lose millions and billions. The few people who succeed with MLM make money by exploiting and manipulating the people they recruit.
While MLMs might be technically legal, that does not mean they are an opportunity. They are NOT an opportunity. MLMs are designed to seduce you into thinking you can make money when in reality you will only lose money.
Statistical data gathered over decades from hundreds of MLM companies proves that less than 1% of the people who try MLM make money.
In other words, your chances of making money are better in Las Vegas than with any MLM!
MLM and A Pure Pyramid Scheme.
Multi-Level Marketing companies are structured like pyramid schemes.
In a pure pyramid scheme, there is no product and nothing of value is created or exchanged. People simply pay to join and the entire organization exists because of aggressive recruitment.
Why Do People Join MLMs?
Why would people join if there is nothing of value? They join because they have been sold a dream of financial independence.
When you are sold a dream of financial independence, you respond emotionally. Your greed is triggered. Once you respond with greed, it’s like you had a lobotomy, you cannot think clearly.
That’s how MLM recruiters get you. They sell you a dream about financial independence and you hand them your money.
A charismatic personality selling the dream can practically vacuum money out of people’s pockets. I have known people to mortgage their home to join such schemes.
Because a pyramid scheme is so profitable, companies want to take advantage of it. The problem is it’s against the law.
The Difference Between an MLM & a pyramid scheme
The legal definition of a pyramid scheme is based on whether a business offers a legitimate product and to what degree the profit of a business is dependent on recruiting.
There was a time when an MLM that was dependent on recruiting was considered a pyramid scheme. However, large MLM companies earn billions of dollars a year and now influence powerful politicians at all levels of State and Federal government.
The laws are changing. New laws permit MLMs to act more like pyramid schemes and get away with it.
Financially, now there is often very little difference between a pyramid scheme and an MLM company.
For example, a pyramid scheme might charge a $100 a month for someone to be a member and there is no product. That’s illegal. On the other hand, an MLM charges someone $105 a month for $5 worth of vitamins and that’s legal.
In both cases, about the same amount of money flows from the bottom of the organization to the top.
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Selling the Dream.
Typically, both pyramid schemes and MLM companies recruit people by selling the dream. They both pitch greed.
If you are considering a so-called MLM opportunity, ask yourself, is it only because you want to be financially independent? Read How to Evaluate an MLM.
Reality Check.
The truth is, very few people achieve financial independence with MLM. Most people lose money with MLM and quit in the first year. MLM companies know this and will try to wring as much money out of you as they can before you quit.
John Oliver Demonstrates How MLM Works.
The Greatest Opportunity of Your Life.
I’m convinced the internet is the greatest opportunity in history of the world. Now, for the first time ever, anyone with a computer and web service has access to the global market place. There are countless strategies for tapping into the internet’s wealth, but in my experience, affiliate marketing is the easiest and most reliable for the beginner. IF, they get the proper training.
Proper training is essential. Most affiliate marketing training programs are dubious at best, many are scams and some are so expensive they will bankrupt you before you make your first dime. This is why I recommend the free starter level of the Online Entrepreneur Certification Course AND why I offer my coaching for free too. When you enroll in the FREE starter level of the Online Entrepreneur Certification Course, you’ll get direct access to me via email.
If you want to make substantial money online and you are willing to work for it, I’m confident the Online Entrepreneur Certification Course is your best shot. Get started now. To learn more, Go Here!
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If you found this article helpful or have experience with MLM, please leave a comment below.
Hi Gary,
I thoroughly enjoyed reading this! I have always wondered what the differences were (if any) between multi-level marketing and ponzi schemes. You put it all into perspective nicely for me.
I hadn’t realized that products are what distinguish MLMs from ponzi schemes.
It’s also comforting to know that there are actually legitimate companies out there, where affiliate marketing can be learned and used to build a successful income.
Thank you!
Steve
Hi, Steve!
Thanks for stopping by. I’m pleased you found my article about MLM helpful.
Ironically, when I was a dishwasher in the early 1970s in Columbia, South Carolina, I bumped into the shakers and movers of the “Dare to Be Great” Ponzi scheme. They were very open about how they operated and were not bothered at all that people were mortgaging their homes to join the scheme.
Shortly after this experience, “Dare to Be Great” was shut down. Through the legal proceedings prosecuting “Dare to Be Great” the FTC created the legal test of what defines a Ponzi scheme. The test was if they had products and if the majority of the companies income comes from products or recruitment.
A Ponzi scheme is solely dependent on recruitment. MLMs skate just inside the law.
All the best,
Gary
Hi Gary! 🙂
Very informative read! I can attest to all of it firsthand, as I have been involved with MLM before. Its DEFINITELY a WHOLE lot of spinning your wheels right from the get go, starting by the instructions to “start with every single person on your cell phone contact list and facebook friend, even if you haven not spoken to them in AGES”. That is just one of the issues that I have seen, having been in one.
I stumbled upon the concept of affiliate marketing, and I immediately fell in love with the concept. Being able to promote practically any products you wanted, and not being bound to just one, and not having to literally go out and talk to every single person you see? It seemed great! Upon further research, I came upon Wealthy Affiliate, and I am so glad I did. It is absolutely insane how much I have gotten out of WA. I really fancy how you learn how to build a business, utilizing aspects such as website building, SEO, keyword research, and so many more, as contrary to just learning “how to get people in the business and then teaching them how to talk to everyone they know” like in MLMs. I am very happy that WA is working out for you! I have learned SO much already, and I know it will not stop. 🙂
Artistically yours,
Pascal
Hi, Pascal!
Thanks for sharing your experience with MLM. It got me several times too and it was a humbling experience.
It’s telling how the MLM upline doesn’t care about your reputation or your relationships. They push you to exploit your friendships for their gain. I lost a lot of friends when I was in MLM. It’s not worth it.
MLM is a horrible way to try and make money.
Thanks for stopping by,
Gary
Hi Gary,
Very interesting read here! I recently became involved with an MLM and I must say it’s been a lot of work. I did really well on my introduction of products because my friends and some family members came over… and of course they purchased. It put me into the next level. After that, it was pretty much nothing… and I was facing a monthly purchase. It’s definitely not my thing!
Building a business based on integrity and proven business principles makes absolute sense. Wealthy Affiliate sounds like the way to go.
Thanks Gary… I’m looking into them now!!
Hi, Monica!
Thanks for sharing your experience with MLM. Over the years I got involved with MLM four times with different companies. It sure looks inviting at first, but as you found out, it is a very inefficient way to do business. There is non reason to try MLM now we have the internet.
The free starter membership with Wealthy Affiliate is an excellent place to start.
Thanks for stopping by,
Gary
Hi Gary, thanks for telling the difference between an MLM and a Ponzi scheme, which made it very clear. I myself have fallen victim to a Ponzi scheme, albeit a much more elaborate one that the case mentioned. Those people acted like professionals for one or two years with the most attractive brochures and other incentives. And yet they were crooks in the end. It is said ,because of the way they manage ( by recruiting), any Ponzi scheme will blow itself up within a period of two years maximum. Much of the damage will have been done by then.
Hi, Jerry!
I’m sorry you had to go through that. I’m sure it cost you.
Yes, the people running Ponzi schemes know precisely how to play the game and turn our trust against us. You might be interested in the book “Influence: The Psychology of Persuasion,” by Dr. Robert B. Cialdini. “Influence” shows all the ways our emotions and reasoning can be hacked by others.
I mention Cialdini’s book because scammers of all stripes exploit our emotions and logical minds in order to take our money. In the case of Ponzi schemes, they can totally wipe us out.
I agree that in theory a Ponzi scheme has a short life, but the internet has given them a much broader reach and also permits the scammer to operate out of a country that will not prosecute them. Also, I find that many of the larger Ponzi schemes protect the core scam by constantly creating new business names and websites that feed the central operation.
MOBE, otherwise known as My Online Business Empire, My Online Business Education or My Top Tier Business, hides behind dozens, if not hundreds, of alias websites that feed the unsuspecting to the central Ponzi scheme.
Thank you for sharing your experience. You’ll never know the people you may have saved from a similar fate.
All the best,
Gary
Yea MLMs are the worst! Well, at least they got the best of me in the beginning but no I know better.
Have you heard of the the MLM Aspire by Michael Force. He sells these high ticket products and the model is all about bringing someone in to be another affiliate/member and sell the MLM training.
Empower Network is another popular MLM. They got me good back in 2013 and I failed miserably. A fun fact is Michael Force is an old elite member from the upper ranks of Empower Network.
MLMs work but they are so scammy and risky that it isn’t worth it in my eyes. Affiliate Marketing with actual products within Niches is the way to go in my mind.
Hi, Todd!
Thanks for stopping by and sharing your experience with MLM.
I’m familiar with Aspire and suspected that Michael Force had been with Empower, but couldn’t confirm it. Aspire is set up much like Empower.
I’m sorry to hear you tried Empower. I’m sure that cost you a pretty penny. Both Aspire and Empower are outrageously expensive. Their marketing sure is persuasive though. I can see why people are drawn to it.
I agree, affiliate marketing is the way to go. With the right training and a simple strategy, anyone who can operate a computer can make a very good income. Unfortunately, many people expect making money online to be fast and easy. It might be easy, it was for me, but it wasn’t fast.
Because it takes time and effort to earn money with affiliate marketing, people want to believe the marketing lies of scams like Empower and Aspire, and the rest of the MLMs and false guru’s.
I wish more people would realize that making money online, even a lot of money, is really simple. It does require most people to learn new skills and it can take months before the money starts to roll in, but the strategy is simple and very inexpensive to start. Free training is available here.
All the best,
Gary
Hello Gary,
Great presentation! You really educated me. From today, i know the difference between ponzi schemes and MLM. Both will stop at nothing to drain your pocket.
I like how you started it all. You then redirected the reader to your legitimate site.
Maybe, giving the reader what he looks up to attain before redirecting him/her will work some magic. From how you wrote, I’m sure you can do something even better that.
Hi, AndyBoachie!
I appreciate your kind words. There are a lot of believers in MLM, but the truth is very few people ever earn anything with that business model.
All the best,
Gary
Thank you for explaining Wealthy Affiliate these awesome… I’ve on Ponzi before, need to ask others to fulfill member get member needs. Really tiring if we multiplying things we don’t even like to do (except involving money as the reward) doesn’t make it sounds bad and impossible, just tiring and seems endless meet so many complaints.
Might be better if we have the good knowledge to handle those error handling to be responsible, but can’t… since it’s not our own product, (eventually) need to go for paid education (plus expensive) to know more… but in WA, we have a really different daily routine, even we can’t say it as routine at all.
Everything’s new, applicable, and enjoyable with our own creativity. Like no boundaries to grow…
Hi, Kevin!
Thanks for stopping by. Like you, I found trying to make MLMs work very frustrating. In MLMs all of the marketing expenses are pushed onto to marketer. The MLM company not only doesn’t cover the expenses of trying to market the products, they make a profit by selling their members marketing material.
MLM is a lose-win situation. You lose. The MLM company wins. Why would you want to get your friends and family involved in that racket?
You’re wise to join Wealthy Affiliate where you can learn profitable skills and create a sustained income.
All the best,
Gary
I like the way you make it easy to understand the similarities between an MLM and a Ponzi scheme. A few have tried before, but their explanation was not as accurate and as simple as yours.
I can see why MLM’s are so difficult as most people are not direct sellers or recruiters not to mention the overpriced products they tend to offer.
Using you recommended method, in your experience what seems to be the best products and companies to deal with?
Hi, Travis!
Thanks for stopping by.
I spent a lot of money and a big chunk of my life trying to make Multi-level marketing work. And, I made major life decisions because of MLMs too. All for naught.
Ultimately, I came to see that MLM is a rigged game. I’ve known people who have clawed their way through the ranks only to be forced out so their upline can take over their downline, or have the compensation plan changed on them or the MLM go out of business.
The pursuit of money can bring out the worst in people. This bit of wisdom is double true in MLM.
At best, MLM is an inefficient business model that requires enormous energy and money to recruit others.
Compare MLM to an internet business where you are simply promoting products or services directly. An internet business is the most cost-effective and efficient business possible. And it’s a lot cheaper to start and maintain and you don’t have to bug your friends and family either.
The internet is the future. While MLMs have tried to adapt to the internet, all they really have done is used the internet for recruitment. MLM is about recruitment and it will always be about recruitment.
For this reason I do not recommend any MLM company whatsoever! The probability that a little guy can become financially independent through an MLM is near zero.
On the other hand, millions of people have started with nothing more than an internet connection and become financially independent through affiliate marketing. Wealthy Affiliate is the only reputable place I know of that teaches people how to make money online the right way.
All the best,
Gary
It was great to read this article, not only have I never understood what a ponzi or MLM scheme is, but you have now introduced me to a very real possibility in Wealthy Affiliate. I had only ever considered joining a scheme such as you describe and was focused on trying to find the right one. Never once had it occurred to me to build my own business.
I will definitely be investigating this further
Hi, Al!
Thanks for stopping by. MLMs can be very seductive. I’ve joined several over the years before I realized that because of how they are structured, it is almost impossible to succeed with them.
Here’s the kicker, even if you do manage to succeed with an MLM, they are free to change the rules, restructure or close up shop any time and leave you holding the bag. It’s a lousy way to build a business.
Building a profitable online business is much easier and you won’t have to bug your friends and family.
All the best,
Gary