Handling Objections: Is MLM A Pyramid Scheme?

Multi-level marketing (MLM) is a type of business where an independent contractor, distributor, representative or associate, of a parent company is compensated based on the sales of products or services as well as the sales achieved by those that they bring into the business. This is like many franchise companies where royalties are paid from the sales of the individual operators to the franchisor as well as an area or regional manager. In a legitimate MLM company, commissions are earned only on the sale of the company’s products or services. No money may be earned on recruiting alone.

You may have heard of “pyramid schemes.” There is often a bit of confusion around what the difference is between these illegal operations and legitimate MLM businesses. Unlike “pyramid schemes,” MLM companies are based on the sale of a legitimate product to a consumer who actually wants it. If you bring somebody into a business and you receive a commission check simply because you brought them into the business, you are participating in an illegal “pyramid scheme.” If you bring someone into a business and they buy a distributor kit and also want to buy products to try, that is a legitimate MLM company.

Recently, I was in a restaurant and I asked the waiter, “Is your lasagna good?” He said, “I don’t know I’ve never tried it.” I thought, “If I ran a restaurant there would be absolutely no way I would put someone on the floor as a waiter who hadn’t tried all of the food on the menu.” For the same reason, distributors for MLM business must use the products they are selling.

In order to succeed in this business, you must understand these three main parts of multi-level marketing:

#1) The MLM Industry:

The MLM industry was proven legal by the US Federal government in 1979. The federal government tried to sue Amway Corporation and prove that it was a pyramid scheme, but they failed. It took them four years, but they failed and so it was proven that it is a legitimate business.

MLM is also proved itself as a highly effective method of distributing a product or service to consumers. The MLM industry is one of the five main methods of distributing a product or service. The other major methods of distribution are store front, telemarketing, direct mail, and the internet.

#2) The MLM Structure:

The structure of an MLM company is unique to each company. The structure is made up of the product or service that the company has, the compensation plan that the company uses and the training that the company delivers. These three parts of the structure are what drives the activities of the distributors in a multi-level marketing company.

#3) MLM Activities:

The activities of the distributors in each MLM company determine whether the company is operating legally and ethically. Legal and ethical activities include selling products to consumers that make their lives better and training new distributors so they get results.

If the leaders of the company are telling distributors to only focus on recruiting people and that customers will come later, then the activity of the company is not legal and ethical. You, not your upline, must take the responsibility to shift away from any activities that you see as unethical.

Understanding the three main components of multi-level marketing will help you further your success in your MLM business and allow you educate and support your network.