Compare and Contrast: Multi-Level Marketing and Pyramid Schemes

Ok, a little context real quick. I am planning on becoming an independent consultant for Jamberry, and in my research about network marketing/multi-level marketing, I came across something interesting that I thought I would focus a blog post on: the carefully drawn line between pyramid schemes and multi-level marketing schemes (MLM). Now, how does this affect e-marketing? With the growth of online marketing, many MLM-based companies are now becoming "Facebook companies," where a lot of the marketing is based on Facebook and other social media sites. Pyramid schemes are also becoming more of a problem, with people being able create legitimate-looking schemes to draw people in. 

Back up a bit. What are pyramid schemes and MLMs? Well, "a pyramid scheme is a non-sustainable business that involves the exchange of money, usually in the form of a sign-up fee, and usually has no product or service." (wikihow.com) These businesses are illegal! Go figure. Money is charged for enrolling other people into the scheme. Only a few people actually make money, and those few are the ones that started the scheme in the first place. So, basically, you pay money to join the scheme, and only make money if enough other people are willing to pay to join the scheme. It's just an exchange of money for no real reason.

MLMs, such as Jamberry, Avon, MaryKay, and Pampered Chef, are built bringing in "independent consultants" to market products. As a consultant, you are encouraged to recruit other consultants to join, at which time you may receive a commission from everything your recruit sells. For example, in Jamberry's compensation plan, as a first level consultant, you can make between 30%-40% commissions on what you sell, and 3% on what your recruits sell. As a team manager (7th level), you make 12% on your recruits' sales, 7% on their recruits, and 5% on on their recruits. You don't get any money just for recruiting, your recruits have to sell, and you have to sell as well to get money. 

So, the main differences are:

• MLMs are based on selling products, you get commissions on sales and your recruits' sales; pyramid schemes are based on recruiting, and that's all you get money from.
• Pyramid schemes are illegal, MLMs are legitimate (and kind of brilliant)
• MLMs are based on selling products, pyramid schemes usually don't have products to sell.