Is MLM the same as Pyramid Selling?

The terms "multi-level marketing" (MLM) and "pyramid scheme" are often confused, but in reality is a very different business models.

Below is the breakdown of the key differences:

Multi-Level Marketing (MLM):

Legitimate Business Model:

MLM is legal business structures where participants registered as company Distributor/Member and start earn money by selling products or services and also recruiting new Distributor. The business model focus is on product sales.

Earnings from Sales:

In a legitimate MLM, distributor earnings primarily come from selling products to customers, not just from recruiting new Distributor. Distributor earned commissions from the sales made by Distributor they recruit or personal product sales.

Product Focus:

MLM companies have a genuine product or service to offer. Most of the products are often consumable, like health supplements, beauty products, or household products.

Pyramid Scheme:

Illegal Structure:

Pyramid schemes are illegal in many countries. The system is rely heavily on recruiting new distributors/members rather than selling actual products or services.

Earnings Based on Recruitment:

In a pyramid scheme, the primary way to earn commission is by recruiting others to join the scheme. The money paid by new recruits is used to pay those at the top of the pyramid.

No Genuine Product:

Often, if there is a product, it’s typically a guise to mask the recruitment-driven structure. These products have little to no real value and are not the main focus of the business.

The main distinction lies in how earnings are generated and the emphasis on products versus recruitment. MLM business can offer a viable way to earn based on sales of products, provided there's a solid customer base interested in those products. In contrast, pyramid schemes are unsustainable and often collapse on themselves when it becomes impossible to recruit new members.