Pyramid Schemes – Is Network Marketing Legal

” . . . just another one of those pyramid schemes,”

That’s often the first thing out of their mouth when many people are introduced to an mlm opportunity.

pyramid schem

That is often their understanding based on what the business looks like when it is presented to them on paper.

And it partially due to the fact that there HAVE been some illegal network marketing scams in the past. Knowledge is priceless and so is education.

It definitely pays to be knowledgeable about the difference between an mlm company and a pyramid scheme. It will help you know what to look for and what to avoid in an mlm business or comp plan structure.

For example there would be 3 people at the first level, nine people on the second level, 27 on the third level etc.

A Pyramid is a business structure that has levels. Many offline businesses or companies have a pyramid structure with executives, directors and employees…

A Pyramid SCHEME, however is where money would be exchanged between people involved in the levels but no products or services would be offered.


Judging a business based on the type of model it uses would somewhat be unfair.

If that were the case 95% of businesses in existence would be considered a pyramid scheme!

The following will give you a better understanding of business models and different pyramids to look out for.

Most business hierarchy’s have a pyramid system where the CEO is at the top making the most money.

Under the CEO would probably be the CFO and COO.

Under them would be the board of directors.

Then you would have your management.

Last but not least and working the hardest are the people on the bottom of the pile.

they are the ones you see at the cash registers taking your payment or
the waitresses or waiters on the floor taking your order.

Or take a prison for example….In some prisons you have one Warden, then the Major, then maybe 3 Deputy Wardens underneath
them. Possibly five or six captains come after that. Underneath those
five or six captains are maybe ten Lieutenants. After that on the
ground level doing all the dirty work would be about 100 to 200
correction officers.

Most businesses whether it’s profit or
non-profit operate in a pyramid structure but they prefer to call it
something OTHER than a pyramid.

typical pyramid schemes

What IS A Pyramid?

A Pyramid Scam involves individuals that recruit others that in turn recruit others. This system of recruiting has to have no end to ensure its success.

The reason it’s called a pyramid is the structure it turns into.

For example, 5 people recruit 5 people (25 people) to give them $50 ($250). Then those 25 recruit 5 more each to give them $50 ($6250) and the money keeps being passed upwards to be distributed to the recruiters. No products or services are offered or sold.

The reason it eventually turns out to be an mlm fraud is because for everyone to be successful, there has to be a never ending sea of people to recruit for everyone to make money.

The difference between a Pyramid Scheme and multi level marketing (besides the fact that MOST mlm companies offer a product or service), are that you are not required to recruit in order to make money.

Yes, network marketing IS legal IF you can make money by simply marketing the product or services without having to recruit, should you choose to do so.

HOWEVER, it does NOT mean that the mlm company is a pyramid scam JUST BECAUSE it encourages you to recruit!

Anyone in sports knows there would be no football teams, if there was not a constant recruiting act going on!

Any network marketing is legal if you can sell or promote the product that is offered by the MLM company and earn money.

might earn more money if you introduce (recruit) others into the
business but it is not a requirement to do so to earn money.

There are in fact some Pyramid Scams disguised as MLM companies or Network Marketing Businesses.

The way to tell the difference is simple.

Ask yourself if the mlm company offers a product or service of value. If the mlm company requires you to recruit in order to make money, it should be considered a red flag. Remember that pyramid schemes and Scams are made to sound good and people are fascinated by the idea of making fast money. This can usually lead to poor decision making. You owe it to yourself to do your research. And also….Pyramid Schemes USUALLY don’t come with a customer support department. And don’t ever let anyone tell you that you make a gazillion bucks your first year in network marketing – it simply aint gonna happen. It takes time to learn the ropes and to build your business, just as in any other venture in life. The beauty of network marketing is that you get to build YOUR empire with time, that will pay YOU as the CEO some day for all your hard works and efforts!