What is the difference between a Multi Level Marketing (MLM) company and a pyramid scheme?

Many people are confused about this and over the years the lines have become a bit blurred. Scammers have become so innovative that it is often difficult to tell the real thing from the bad apple.

Because so many people have been caught all schemes are now treated with trepidation. It's safer to assume everything is a pyramid scheme and to stay away at all costs.

Essentially the difference between a MLM business and a pyramid scheme is one of legality and ethics.

With a MLM company there will always be a product. The product is almost always described as unique and usually it is eco friendly or sustainable. The typical, but not exclusive, sort of thing would be natural ingredients with no chemicals.

The MLM side of it comes in through the marketing, or business side of it. The product is not available through normal retail outlets and must be purchased from a member who is participating in the scheme. If you want to buy the product you too need to become a member and the person who introduced you gets a commission on your purchases.

A certain amount of product has to be bought every month and meetings have to be attended. These meetings serve a threefold purpose:

1. New product launches.
2. Member training.
3. New membership recruitment drives.

Commissions are paid down several layers so if any of your recruits who go on to recruit others you will benefit from their purchases.

The problem with many of the MLM companies is that after a while the product is ignored while the business side of MLM is aggressively promoted as an easy way to make money.

It is never easy to make a lot of money.

People often give up because they land up with a garage full of product and a bunch of disgruntled friends and family members - the victims of the aggressive recruiting.

Pyramid schemes on the other hand have no product and are simply a way to fleece greedy people of their money.

A typical pyramid scheme is the envelope one. This scam is where you receive a letter in the mail from David (fictitious name). David tells you this wonderful story of how he is getting envelopes full of money in his mail box each day. His current earnings over a 4 to 6 week period could be in the region of hundreds of thousands of dollars.

All you have to do to earn the same as David is send a measly $10.00 to the person who is listed number 1 on the list of 6 names listed at the bottom of the letter. Once you have sent the $10.00 you are to remove the person from number 1 and move everyone else up one space. So the current number 2 becomes number 1 and so on leaving no-one in number 6. That is where you put your name.

Now simply make 200 copies and send the letter to 200 people, sit back and wait for the mail man to bring you your money. It's as easy as that, claims David.

David will give you the maths to convince you that once your name gets to the top (the number 1 position) the letter will be going to hundreds of thousands of people and if only a very small percentage send the $10.00 as instructed you will receive a small fortune.

The difference between a MLM and a pyramid scheme is that the people who join the pyramid scheme late get nothing but with a MLM company you get your product and commission if you are prepared to follow the plan.