https://www.

managementstudy
guide.com/multi-level-
marketing.htm

SEC explains difference

between multi-level marketing,
pyramiding
What is the difference between multi-level marketing and a pyramiding scheme?

In an interview on radio dzMM Tuesday, Atty. Lalaine Monserate, assistant director of the Securities
and Exchange Commission (SEC) Enforcement and Investor Protection Department, said multi-level
marketing (MLM) is a legitimate operation.

In MLM, also known as network marketing, a person earns income become he or she is selling a
certain product, Monserate explained.

"Ang multi-level marketing, wala naman pong diperensiya po yan. In fact, legitimate po yan," she
said.

In a pyramiding scheme, on the other hand, there is no product involved, she stressed. A person
only earns based on his number of recruits.

"There is no product involved inside the pyramid," said Monserate. "Ang legitimate na multi-level
marketing network, yung main consideration is you earn income because you are selling the
product."

"[Sa pyramiding], pag pumasok ka dun, pwedeng kapalit daw po ay produkto, pero hindi mo naman
kailangan yung produkto. Ang sabi nila 'for sale,' binibili mo yun, pero hindi mo kailangan, pwede
mo nang ipamigay sa kung sinong kakilala mo," she added.

Radio dzMM, August 4, 2015

 Multilevel Marketing (MLM)
https://www.thebalancesmb.com/multilevel-marketing-mlm-2947187
•••
BY SUSAN WARD

Updated February 15, 2017

Definition:

Multilevel Marketing, or MLM, is a system for selling goods or

services through a network of distributors. Multilevel marketing is
also referred to as Network Marketing or Direct Sales.
How Does a Typical MLM Work?

The typical Multilevel Marketing program works through

recruitment. You are invited to become a distributor
(or contractor or consultant or associate), sometimes through
another distributor of the company's products and sometimes
through a generally advertised meeting.

If you choose to become a distributor with the direct selling

company, you'll earn money both through the sales of the MLM's
products and through recruiting other distributors, by receiving a
portion of the income these distributors generate.

And when those distributors recruit distributors of their own, you'll

earn money on the income they generate too.

The distributors that you sign up with your Multilevel Marketing

plan and the ones they sign up in turn are called your downline.
The distributor that originally recruited you and whoever is above
him or her in the recruitment chain is called your upline. Often the
distributor who recruits you will give you some help getting
started, including training.

Interested in becoming a distributor? Read Is Direct Selling (MLM)

a Good Business Opportunity?
How Big Is the MLM Market?

Big. The top 3 MLM business are:

 Avon Products, Inc., founded in 1986. Avon has annual

sales of $11.3 billion and over 6.5 million sales associates.
Avon markets various beauty products, jewelry, and fashion
apparel.

 Amway, founded in 1959. Amway has annual sales of $10.9

billion and over 3 million sales associates selling cosmetic,
wellness and food and beverage products.
 Herbalife Ltd., founded in 1980. Herbalife has annual sales
of $4.8 billion and has over 2.7 million sales associates.
Products include cosmetics, personal care items and
nutritional supplements. In 2016 Herbalife was cleared of
allegations of having a fraudulent business model after an
investigation by the FBI failed to find sufficient evidence.

Listing these three is talking about just the peak of a truly gigantic
iceberg. According to the Direct Selling Association, in 2015 over
20 million people in the U.S. were involved in direct selling, with
total sales of $36.1 billion. More than 74 percent of the American
public has purchased goods or services through direct selling.
Worldwide sales are also strong with more than $154 billion in
sales.
Why Is Multilevel Marketing So Popular?

The main reason, I think, is that most Multilevel Marketing

programs operate on a "the sky's the limit" promise with a nice bit
of "easy money" thrown in. If you work hard, the MLM sales pitch
says, there's no limit to how much money you could make. And
through your downline you will actually make money doing
nothing.

The cherry on top is that MLMs are usually very inexpensive to

join, so becoming a distributor is much cheaper than starting a
business of your own in many cases or doing something like
buying into a franchise.
What Are the Odds of Making Money with MLM?

Poor, according to Jon Taylor, who runs the MLM-

theTruth.com website. In his free e-book Multi-Level Marketing
Unmasked, when operating expenses and other costs are
included, 99.7% of people who join MLMs lose money.

In other words, for every 1,000 people who join an MLM

organization, only three will earn more money than they spend.
Are MLMs Legal?

Multilevel Marketing plans are legal in the United States and

regulated by the Federal Trade Commission (FTC). In Canada
MLMs are legal as long as they do not contravene the
Competition Act. MLM companies are, in general, largely
unregulated and the existing laws regarding MLM practices are
vague or poorly defined. As such, prosecutions of offending MLM
companies are long, arduous and relatively rare. Larger MLMs
can easily afford powerful legal representation to ward off
prosecutors.

If you are considering becoming part of an MLM company, you

need to investigate the opportunity thoroughly, just as you would
with any other proposed business venture. Not all Multilevel
Marketing plans are created equal, and some may not be MLM at
all, but pyramid schemes, which are illegal.
To learn how to tell the difference between them, see Is It
Multilevel Marketing or a Pyramid Scheme?
Alternatives to MLMs

If you are looking to start a business, there are other, proven

business ideas that can generate full or part-time income:

15 Inexpensive Business Ideas

Top 10 Home Business Opportunities

12 Unique Business Ideas

The Best Business Ideas for Working for or with Seniors

Best Business Opportunities for Retirees

16 Part-Time Businesses You Can Start Today

Also Known As: MLM, Network Marketing.

Alternate Spellings: Multi-level marketing.

Examples: Because Penny worked really hard and truly believed

in the product line, she was a very successful Multilevel Marketing
distributor.

Learn to Distinguish Between MLM and

Pyramid Schemes
 https://www.thebalancesmb.com/is-it-
multilevel-marketing-or-a-pyramid-
scheme-2947159
Multilevel Marketing and Pyramid Schemes Can Be Very
Similar
 Share
 Pin
 Email

•••
BY SUSAN WARD

Updated August 29, 2017

Considering a multilevel marketing opportunity (MLM)? Be

careful. It may well be a legitimate multilevel marketing business.
Or it may be a pyramid scheme - an illegal scam designed to steal
your money.
Multilevel Marketing Can Be a Good Thing

Multilevel marketing is an attractive business proposition to many

people. It offers the opportunity to become involved in a system
for distributing products to consumers.

Unlike the person starting a business from scratch, the multilevel

marketing participant has the support of a direct selling company
that supplies the products and sometimes offers training as well.
How MLM Works
As a consultant or contractor or distributor (different companies
call them different things) you make your money by selling the
products to other multilevel marketing participants. If they're not
already a member of your MLM company, you sign them up.

Besides earning money off your own sales, you also earn a
percentage of the income generated by the distributors that
you've brought into the program (your downline). Often there are
bonuses for selling particular amounts of product or signing up a
certain number of new members; you can earn cars and trips as
well as cash. Sounds good, doesn't it? And being part of a well-
run MLM business can be a lot like being a member of a large
extended family.
Pyramid Schemes

Unfortunately, not every multilevel marketing opportunity is a

legitimate business opportunity. Many pyramid schemes, frauds
designed to part the unwary from their money, are disguised.

Like multilevel marketing, pyramid schemes depend on recruiting

people to become distributors of a product or service.

Like MLM, the pyramid scheme offers the opportunity to make

money by signing up more recruits and by accomplishing certain
levels of achievement.

The big difference between multilevel marketing and pyramid

schemes is that MLM is legal in Canada (and most of the US) and
pyramid schemes aren't. Participating in a pyramid scheme is an
offense under the Criminal Code of Canada, punishable by up to
five years imprisonment.

But it can be very difficult for the person looking for a business
opportunity to tell the difference between a legitimate MLM
opportunity and a pyramid scheme at a glance. How do you tell
whether it's a legitimate business opportunity or a scam?
Pyramid Schemes Have Only One Purpose

The big difference between multilevel marketing and a pyramid

scheme is in the way the business operates. The entire purpose
of a pyramid scheme is to get your money and then use you to
recruit other suckers (ahem - distributors). The entire purpose of
MLM is to move product. The theory behind MLM is that the larger
the network of distributors, the more product the business will be
able to sell.

Use these questions as an acid test if you're in the least doubt as

to whether the opportunity you're considering is multi level
marketing or a pyramid scheme:
Checklist for Recognizing a Pyramid Scheme

 Are you required to "invest" a large amount of money up

front to become a distributor? This investment request
may be disguised as an inventory charge. Legitimate MLM
businesses do not require large start up costs.
 If you do have to pay for inventory, will the company
buy back unsold inventory? Legitimate MLM companies
will offer and stick to inventory buy-backs for at least 80% of
what you paid.
 Is there any mention of or attention paid to a market for
the product or service? Multilevel marketing depends on
establishing a market for the company's products. If the
company doesn't seem to have any interest in consumer
demand for its products, don't sign up.
 Is there more emphasis on recruitment than on selling
the product or service? Remember, the difference
between multilevel marketing and a pyramid scheme is in
the focus. The pyramid scheme focuses on fast profits from
signing people up and getting their money. If recruitment
seems to be the focus of the plan, run.
These next two questions will help you determine what the focus
of the company is:

 Is the plan designed so that you make more money by

recruiting new members rather than through sales that
you make yourself? This is the signature of a pyramid
scheme operation.
 Are you offered commissions for recruiting new
members? Another pyramid scheme trademark. It's the
number of people who are willing to sign up that matters in a
pyramid scheme, not the products or services being offered.
How to Protect Yourself

As always, when you're investigating a potential business

opportunity, you'll want to gather all the information you can about
the MLM company's products and operations.

Get (and read) written copies of the company's sales

literature, business plan and/or marketing plan.

Talk to other people who have experience with the multilevel

marketing company and the products to determine whether the
products are actually being sold and if they are of high quality.

Check with the Better Business Bureau to see if there have been
any complaints about the company.

And listen carefully when you're at that MLM recruitment meeting.

Inflated claims for the amazing amounts of money you're going to
make should set your alarm bells ringing.

Being part of a successful multilevel marketing company can be

both profitable and fun, but unfortunately, some purported MLM
opportunities are actually just cons designed to flatten both your
wallet and your dream of running a business.
Better Alternatives to MLMs

If you are looking to start a full or part-time business, there are

many other proven business ideas that are alternatives to MLMs: