Pyramid Scheme or Legitimate
Network Marketing Opportunity?

How do you know if the business you are looking at is a pyramid scheme or a legitimate network marketing opportunity? Businesses that use a network marketing approach to sales and marketing offer some exciting income opportunities. Sometimes, they can seem too good to be true. Sometimes they are. Because the network marketing model (which is perfectly legal and completely ethical) bears some similarity to illegal pyramid schemes, many people do not know the difference between a pyramid scheme and a legitimate network marketing opportunity.

And fear of getting caught in a “scam” keeps many people from taking advantage of an opportunity that may be perfect for them.

Network marketing scams are actually less common than legitimate opportunities. However, they pop up frequently enough that one needs to be wary of them. In general, network marketing scams share a very common thread: what they offer is unsustainable. In other words, there will be a finite end to the pyramid because the business model is unsustainable. For example, a company that sells nutritional products would probably not be considered unsustainable because there will always be a demand for nutritional products. After all, health and fitness is a big business and people are always looking for something new and innovative. On the other hand, something along the lines of cash gifting comes off as very suspect. This is because this is a business model based on convincing people to present cash gifts out of their own pocket to one another. Clearly, such a business model has structural flaws that are obvious. This is why most of these ventures are obvious pyramid schemes.

Here’s how you can spot a pyramid scheme:

• Does the company sell a legitimate product or service? If not, it is a pyramid scheme and it is illegal. Be careful, though, some legitimate network marketing companies come pretty close to the line of being a pyramid operation when they focus much more on bringing in business partners than selling the product or service. Listen to hear if there is training and support for sales. If not, be careful.

• Is the money you make dependent on cash provided by others who sign up? If so, it is probably a pyramid scheme.

• Is there actual work that you need to do or are you told that you can just sit back and collect the money? If you are told that you can just sit back and collect the cash, it’s not a legitimate business opportunity. Real business success requires effort. True, different business and marketing models can make it easier for you to work smarter, rather, than harder, but anyone saying that no work is involved is simply selling a scam.

Some people think that a network marketing opportunity that has an upfront fee or a franchise fee is a pyramid scheme. This is not necessarily so. Just about any legitimate business, regardless of the marketing model, will have some upfront costs. One of the things that makes network marketing attractive is that it is affordable for average people. The question to ask is not if there is an upfront fee, but what is the compensation plan? What is the product or service to be sold? How much support and training is available?

Here’s the trick about pyramid schemes. They simply do not offer a product or service that is legitimate. They are not so much based on something tangible as much as they are based on a pie in the sky pipe dream. In short, there really is nothing of any value that they offer. Now, if nothing of value is offered, the ability to sustain the pyramid will collapse. This leads to those at the bottom completely lose out on their investment. That is why it is critical to clearly evaluate the validity of a product or service before getting involved with a network marketing offer.

Legitimate network marketing ventures can be described in a simplified manner as a variant on traditional distribution. Specifically, the distributor seeks to connect the source of the product or service and the consumer. That is a simple concept and it is one that has worked for decades.

It is true, though, that not all network marketing opportunities are the same. There are dramatic differences in compensation plans and the overall way in which the marketing model can work. Do your homework before jumping into an opportunity that may not be right for you.

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