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MLM's and Pyramid Schemes: What’s the difference?

MLM's and Pyramid Schemes: What’s the difference?

Unfortunately, many fraudsters disguise illegal pyramid schemes as legitimate MLM plans. Consumers approached to participate in a MLM plan should consult the chart below to help determine whether they are being asked to join a legitimate MLM plan or a dangerous pyramid scheme.

Multi-Level Marketing Plan

Pyramid Scheme

Business Focus

Sales of products and services to end-users (NOT other distributors)

Recruiting new members


Primarily based on the sales of products and services by the distributor. Perhaps some percentage of income from sales by downline recruits.

Primarily membership fees paid by new recruits or “bonuses” for meeting recruitment goals.

Products or Services for Sale

Household goods or services that consumers typically use in everyday life.  Goods and services are priced competitively with traditional retail outlets.

Often a thinly-veiled and poorly-made “miracle” product or service that few consumers want or need.  Merchandise is typically priced well above comparable products sold in retail stores.

Start-up Costs

Low or none at all.

Substantial, often involving recurring “membership” fees or expensive “educational,” “training,” or “advertising” materials that can easily be found free of charge elsewhere.

Support System

Low-pressure, eager to answer questions about the business and provide detailed information in writing upon request, such as a business and marketing plan

High pressure, with a constant focus on recruiting new members of the scheme.  Hard to reach when questions arise.


Eager to provide references who provide honest evaluations of the viability of the MLM plan and the work necessary to succeed.

Unwilling or unable to provide references or only provides references who themselves attempt to recruit a caller.

Sales Pitch

Provides detailed information about the work involved.  Offers no promise of easy riches.  Does not use high-pressure sales tactics.

Involves promises of large profits with minimal work, often in high-pressure seminar environments.  Uses phrases like “limited time offer,” “can’t miss opportunity,” and “guaranteed income.”

Info Available?

Has a good report with the Better Bsuiness Bureau (BBB) and consumer protection agencies and is registered with the local Chamber of Commerce. Provides detailed information on their Web site AND provides hard copies of annual or quarterly reports, business plans, and marketing materials on demand, for little or no charge.

Not registered with the BBB or local Chamber of Commerce.  Information about the company is scarce or limited to a Web site.

Merchandise Buy-Back

Buys back unsold merchandise at 90% or more of purchase price.

Refuses to buy back merchandise at all or buys back at significantly less than the wholesale price

Getting out of the Business

Easily accomplished and accompanied by a reasonable merchandise buy-back program.

Difficult, with high-pressure tactics used to keep participants in the scheme, possibly accompanied by pitches to spend more money on “training” to improve performance.

How Long the Business Will Last

Sustainable, based on repeat sales of products and service

Doomed to collapse

How Likely You’ll Profit

Profits are based on time and effort devoted to selling goods or services to consumers.

The vast majority of participants lose money.

The Bottom Line

It’s a legal business opportunity that may or may not be a good fit for you. 

It’s illegal. Don’t waste your money.

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