The old saying, “If it sounds too good to be true, it probably is,” definitely applies in this case.
Multi-level marketing companies are structured so that new salespeople would have to buy their products at full price and then hope to compensate for the money they paid by recruiting new members (“uplines”) who also must buy the product at full price.
New members would start their own pyramids of new members, who must also buy at full price. Theoretically, suppose the company is managed well, and advertisement efforts effectively convince people that there’s a massive market for the products. In that case, one pyramid will eventually include most clients and members of the whole sales organization.
Theoretically, this pyramid would be the one that breaks even and starts making revenue from membership fees rather than just product sales.
In reality, many of these companies have as customers only their own members or a few more levels down in their pyramids of new members – but never most people. This is because no one would buy the products even at the ridiculously low prices these companies offer.
The only way to compensate for the money invested by members is to recruit more people who also will invest in the company. This, of course, is what multi-level marketing companies rely on – they do not advertise because this would increase costs and lower profits; instead, they pay their members to recruit new members and hope that the snowball of recruiting will continue as more people work for them. In the end, only the founders, those who invested very little money in the company but were there from the beginning, would break even or make a profit from their investment.
In some cases, multi-level marketing companies have such a dominant market share that they can afford to pay their members only on the condition that the members themselves buy a certain amount of product every month.
This is true for Amway, one of the most popular multi-level marketing companies. If you want to be paid by them, you have to agree first on buying and ‘promoting’ (in other words, selling) a certain amount of product. This is obviously not money for nothing; you would be working harder than you probably ever worked in your life.
On top of this, multi-level marketing companies are extremely rigid about the rules. They often take huge chunks out of their members’ commissions because they made some minor mistake.
One of the most important rules is that you cannot promote any other company’s products – even if it is a competitor to one of the parent companies of your own multi-level marketing company. The only exception would be if Amway, for instance, owned no competing company and therefore allowed its members to sell non-Amway products.
This is done mainly to keep all the company’s profits and because of Amway’s strict “buyer beware” policy. If you are expected to buy $100 worth of Amway products every month and then sell them for $120, why would you want to be able to sell somebody else’s product that may not even sell for $100?
In theory, there is no difference between a multi-level marketing scheme and a pyramid scheme. Still, in practice, they are completely different. A pyramid scheme has no product, and its primary source of income comes from recruiting new members to invest in it. These schemes sometimes fall under the radar because they actually offer their members some non-money compensation in the form of a “gift” for recruiting new members.
In multi-level marketing companies, there is always a product. Usually, it is something you can buy in stores or over the internet – with one difference: if you want to be paid by the company (instead of just getting regular profits from your own sales), you have to buy a certain amount of product every month.
If you are interested in making money with little or no effort, then multi-level marketing companies are not for you; if you want to make your fortune selling soap, shampoo, detergents, or vitamins door to door, these companies are definitely not for you. The only people who make money from these schemes are those at the top, and everyone else loses.