Pyramid Scheme-How to Spot a Legal MLM Pyramid Scheme

How Can an MLM Pyramid Scheme be Legal?
I know it sounds oxymoronic to call an MLM pyramid scheme legal. Funny how the word MORON kind of pops out. Most MLM companies are banking on it. Moronic marketers is what the network marketing companies want. And that's a shame because there are a few solid network marketing companies that offer accessible opportunities for the average person to own his/her own business. If you research a company and it is part of the Direct Selling Association, you would think it is a legal company because IT IS. Many MLM companies meet minimal legal requirements to say they are direct selling companies when in fact they really are pyramid schemes. It's crucial to be knowledgeable about how a pyramid scheme is defined.

Pyramid Scheme Defined
The definition of a pyramid scheme, according to Wikipedia, is a business model that is non-sustainable and primarily involves the exchange of money for enrolling other people into the scheme, habitually without any product or service being delivered. So, by offering at least one product or service that any consumer would purchase if there was no commission attached, a company can proclaim itself a direct selling company and take cover under a veil of legitimacy. Two questions: Why doesn't the MLM company pay out more on products and services than sign ups? How do you raise the mask and reveal the scheme?

It's All About the Payout
The reply to the first query is the network marketing company depends on the sign up money from brand new distributors to pay existing marketers. Some money is received from product and service sales however it isn't sufficient to pay the marketers. So the company pushes the existing marketers to do intense sponsoring by offering higher payouts on new marketer sign ups. The money paid by the new distributor to get involved in the MLM company is given to his/her upline.

The second query has a fantastically uncomplicated answer. To expose the scheme you must STUDY the compensation plan...PRIOR TO handing over your hard-earned money. The network marketing company is a legal pyramid scheme if the majority of the compensation is paid based on sponsoring instead of selling products and services. And if you get involved in a legal pyramid scheme, you will probably be part of the 99.7% of network marketers that DON'T make money. The style of compensation plan the company has doesn't matter. You CAN make decent money in any one of these compensation structures...IF the bulk of the compensation is from actual sales. You have more control over sales than the dropout rate of your downline organization which is typically 80-90%. You must be a lean mean recruiting machine if you hope to outpace your fallout rate.

Don't Run from Network Marketing
Any of this sound familiar? Do you know what it's like to be in a legal MLM pyramid scheme? Don't be too hard on yourself. So have I! I'm sure we're not the only ones. It stands to reason why the MLM success rate is low. But now that you've read this article, you have a tool in your resource box to make a wiser choice in the future. Network marketing is a great opportunity. Don't let the bad apples spoil the whole bunch.



Knowing how to choose a network marketing company is critical to your MLM success and Jennifer DePetris has become a pro at it. Visit Jennifer's blog for more tips on choosing a network marketing company.