Is Your MLM Company a Pyramid?

If you've been marketing an MLM opportunity for even a short period of time it's a pretty good bet that you've had a few prospects ask you the following question:

"Is this one of those pyramid schemes?"

The purpose of this article is not necessarily to give you a snappy response to that question but to help you answer this important question for yourself. 

As a business owner it's good to know whether or not you have aligned yourself with a legitimate company or an illegal one.  What's presented below is a simple test which you can apply to any home-based business opportunity.

Network Marketing Definition

In order to understand any subject it's best to begin by defining it.  So here is a definition of network marketing:

It is a method of distrubution used by many different industries who produce and sell products and services. Those industries make use of independent distributors (not employees) to recommend, promote and sell those goods and services directly to consumers based on the consumer's needs while at the same time offering those same consumers the opportunity to become independent distributors.

Okay, that's pretty simple, right?  Now the question is...how do you determine whether your MLM is legal or one of the many network marketing scams?

Network Marketing Legality Test

When analyzing the laws, regulations and case law as they pertain to network marketing a clear test has been created to properly identify whether a particular MLM is legitimate or not.  That test is as follows:

Can an distributor build a business and make money by selling the product to consumers without sponsoring anybody? In other words, could you build a business by strictly retailing product...and not sponsoring any distributors?

In answering this question it's not enough to look at the company's written documents like it's rules and regulations and compensation plan.  It's also necessary to look at other factors such as:

1. Whether the company provides training on how to acquire customers and not only how to recruit new distrubutors
2. Whether the company provides marketing materials geared towards cutomer acquisition such as... product focused brochures, DVDs, and live or recorded presentations.

If the above factors are in place and the compensation plan rewards products sales...then indeed a distributor could, if he/she wanted to, build a business by acquiring customers without needing to recruit other distributors.

If the above factors are not in place and/or the compensation plan is written so that it would be practically impossible for one to build a "retail only" business, then that company is, in the eyes of the legal entities that govern this industry, nothing more than a gifting program or pyramid scheme.

My advice to you is to use this test to analyze the company that you've decided to do business with.  If it passes the test...great!  You've got a winner.  Go out and market it. 

However, if you find that your company does not pass this test I would suggest that you immediately seek one that does.  The entities that govern this industry are cracking down on gifting programs and pyramid schemes.

Obviously, your goal of building a long term, residual income will not be realized if your company is forced to close it doors.

Conclusion

I hope this simple test helps you answer the question of whether or not you're spending your time and effort wisely by working with a company that will be able to pay you your residual income checks that you've earned for many years to come.