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What Is MLM and Why Is It Different From a Pyramid Scheme?

OK, before I start to answer the question, “What is MLM?” I need to define a few terms.

MLM is an acronym for Multi Level Marketing, and is a legal way of marketing products or services and earning a commission every time you, or someone you have referred, sells a product or refers a new marketer.

It’s also called affiliate marketing or network marketing, although there are subtle differences between the three.

A pyramid scheme involves no product and there is no legal marketing involved.  It is purely exchange of money where the person at the top of the pyramid is supposed to make a profit.  Pyramids usually collapse very quickly, and people at the bottom lose their money.  They are illegal in most countries as far as I know.

Unfortunately, many people still distrust multi-level marketing or affiliate marketing because they associate them with pyramids.  Even one of my own (free) affiliates emailed me the other day asking the question, “Isn’t this just a pyramid?”

I sighed inwardly, and then sent him a very nice email explaining the difference.

I also sent him to a website that explains all these definitions in full details and much better than I can in a short blog!  The website is called FirstClassMLM and is run by Tim Sales.  There is absolutely no hype on this website, and also no advertising or any call to sign-up with anything.  It is purely informational and is full of excellent articles explaining all the questions you might have about mlms.

Here are some links to some relevant articles:

What Is MLM?

Pyramid Schemes and Scams

How MLM Works

What is First Class MLM?

If you are interested in getting started in MLM, come back here after you’ve finished reading and have a look at my website for some opportunities.

If you want to find out more about MLM and affiliate marketing, I have given you some book suggestions below this post.

Thanks for reading.

Ros Bott

Financial Freedom Online

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13 Responses to “What Is MLM and Why Is It Different From a Pyramid Scheme?”

  1. Matt Says:

    Ros,

    Great post. Too many people consider MLM as a pyramid. MLM has nothing to do with pyramids. MLM is a very profitable, lucrative business that many have had success. This is a must read for everyone.

    Thanks,
    Matt
    Internet Home Business Opportunities

  2. AffiliatesThatServe Says:

    Good post on the differences between MLM and Pyramid Schemes Ros, there are too many people out there that don’t realise that one is a very legal way of earning a living online and the other is definitely not!

    Carol Aston

  3. Online Business Ideas Says:

    Hi Ros,

    Excellent explanation. It frustrates me that so many multi level marketing programs get a bad name as people just assume that multi level = pyramid scheme.

    Thankyou for educating people on this!

    Cheers,
    Suzanne

  4. Simple Work From Home Opportunity Says:

    Hi Ros,

    This is an excellent comparison of the terms mlm vs pyramid schemes. I’m glad I read this post as I am often faced with this question myself. I now have a clear idea of the difference between the two terms.

  5. Make Money At Home Says:

    Good article, Ros! In the past Amway and other MLM companies did hurt this industry, but the Internet is bringing it back in a big way.

    As long as products can be sold either by wholesale or retail it is not a pyramid scheme. The other distinguishing factor is if your downline can make more money than you, how could it be a pyramid!

    -Jeff Schuman

  6. Tara Martindale Says:

    Ros;

    You explain the difference very clearly and easy to understand. It is unfortunate that a lot of people think “scam” when they see affiliate marketing opportunities.

    Tara
    Work at Home Business Opportunities

  7. Small Business Ideas Says:

    Hi Ros, I enjoyed reading this article because I have had to answer the quest many times. It can be confusing but one of my first answers is “all businesses are a pyramid”. Their just not illegal because they sell an actual product.

    Thanks For The Post
    Stephen Meyer

  8. Internet Affiliate Marketing Programs Says:

    Another great post Ros. Public understanding of mlm has improved over the last 20 years. Many people are desparate for extra income in these uncertain times so many are prepared to listen.

    David Barker

  9. Top Home Internet Business Ideas Says:

    Hi Ros,

    It can be hard for people to distinguish between a pyramid scheme and MLM when they see them first. Your post does a good job in setting the record straight.

    Alan

  10. PlugIM.com Says:

    What Is MLM and Why Is It Different From a Pyramid Scheme?…

    This is a very good explanation of the difference between multi level marketing and pyramid schemes….

  11. Internet Business Ideas Says:

    Ros,
    This is a great post, I actually found myself defending my home business the other day to my friends, it’s hard and some people don’t know how to recognize a pyramid scam, I found myself talking for about 2 hours, explaining. I love to talk ;)

    Tanny
    Ideas for internet home business

  12. Margaret T. Kramer Says:

    The former get their products sold and the latter get money for selling it. The customer is benefited by getting the product or service that he or she needs. Thus, through online affiliate marketing, all are happy and making money on the internet. Nowadays, a large number of pharmacies are busy building huge affiliate networks to promote their drugs. This is because online affiliate marketing works wonders in getting life-saving drugs reach a vast majority of people who are in need of them.

  13. affiliate marketing network Says:

    Affiliate Marketing Network is a mode of promoting a product or services on the World Wide Web. If you succeed in finding for your product the appropriate kind of affiliate marketing network, then you can ensure the fact that its gets noticed amongst prospective clients. An affiliate marketing network comprises of affiliate merchants, affiliates and the intermediate service providers who ensure that web traffic is directed to the concerned website. All three form a part of an affiliate marketing network. Such a network caters to the ones who opt for it and offers services like databasing management, affiliating tracking, legal documentation, reporting, payments to affiliates and a lot of paperwork. Each time a potential buyer visits a product website, the affiliates are rewarded by the business house as per the theory of affiliate marketing. All business houses attempt to reach out to a large base of their potential clientele. This is the reason why they resort to affiliate marketing programs which offers them with just the right plan for their business. There are a number of professional service providers who offer such programs. With a good affiliate program for your business, you can ensure a steady flow of money for your business.

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