Differences between network marketing and a financial pyramid: How to recognize the difference

Let’s find out what Yevhen Kasyanenko, an expert and team leader at BlooMLM, has to say on this subject. Thanks to his explanation, you will understand exactly what MLM is based on and how to distinguish network marketing from a pyramid scheme. Understanding the mlm vs pyramid schemes difference will ensure you never fall victim to scammers and can confidently participate in a legitimate business.

What is network marketing?

The difference between MLM and a pyramid scheme is that it is a legal business model. It is based on the direct sale of goods or services by independent distributors. This differs from a traditional retail business. After all, no intermediaries are needed to distribute the products. The main income goes to the partners, rather than being spent on logistics and advertising. This reduces costs and allows for a more flexible bonus system. This motivates each participant to develop the sales system and deliver results. 

To understand the difference between a network and a pyramid, it is worth learning the main characteristics of MLM. Here they are:

• The product itself is the foundation of the business. It is of high quality and is purchased by real customers. If a company does not have a product in demand or uses it as a cover, then it is most likely a financial pyramid. To be successful in MLM, the product range is carefully developed, salespeople are trained, and the product is promoted. Everything is done to ensure that the product fully meets high quality standards. In reliable MLM companies, more than 60–80% of turnover comes from real products purchased by customers (not the partners themselves).
• There are no mandatory contributions. You don’t have to pay anything to register with the company. Sometimes a small amount is required to purchase a starter kit of products. This is an important point. After all, a real MLM company will not make money from subscriptions or “entry tickets.” Its main focus is on selling real products to customers. If a company requires a lot of money from you and does not offer a guaranteed product, this should raise questions about its legality. According to DSN, about 80–90% of companies do not require large registration fees, and starter kits are either free or cost a small amount of money, which is offset by the product.
• To earn income, you need to sell. The amount you earn depends directly on the number of sales. In essence, partners work on an entrepreneurial basis — active and effective work leads to high results. How does a pyramid scheme differ from network marketing? In a pyramid scheme, everything is different. You are paid only for recruiting new members to the team. But in real business, it is necessary to build on real sales. On average, 10–15%of the most active distributors earn more than $1,000 per month, and another 2–5% earn more than $3,000 — and this is the result of their efforts in sales and team building.
• Rewards based on a fair system. Each distributor has the opportunity to receive a percentage of their personal sales and team sales. However, there is no guaranteed profit. This means that you are only paid for the work you actually do. Participation in the system alone is not paid. Thanks to clear marketing plans, it is possible to build a business that is understandable to everyone. After all, all participants know exactly what they have been rewarded for. This can be tracked. Everything is transparent and honest, unlike a pyramid scheme. 
• Training and support. The MLM company will invest in training distributors. This is necessary for them to sell more effectively. Special training courses and workshops are provided for beginners. They have mentors who explain every step of the way. They also use marketing tools. All of this increases the chances of success in network marketing. With this approach, newcomers develop the skills they need to build a stable income. They will not rely on passive income. Everyone has to make an effort. Leading companies (Amway, Herbalife, Avon) invest 10–15%of their budget in distributor training programs, which improves their sales skills and loyalty to the business.

Transparent operations. MLM companies are legally registered. Their work is carried out in accordance with the law. The company publishes its financial statements. Partners have full access to the rules and methods of calculating remuneration. You should be wary if a company tends to hide information about its leaders, legal status, and sources of payment. It would be dangerous to cooperate with such a company, as it is similar to a pyramid scheme.

Examples of successful companies

There are companies that have been popular for decades. They have proven that network marketing is an effective business model. Well-known companies include Amway, Herbalife, and Avon. And they are not just selling products. They have a whole network of distributors. Each of them has the opportunity to grow further and get more benefits from the business. The success of these companies is based on the fact that they offer high-quality products and provide their partners with a clear bonus system. They have also developed long-term development strategies that are completely focused on customers and buyers. All this has made them successful and popular.

In numbers:

• Amway (annual turnover of over $8 billion, more than 1 million active distributors).
• Avon (about 5 million representatives worldwide).
• Herbalife (annual turnover of about $5 billion, over 2.3 million distributors).

To find a company that is honest, reliable, and promising, it is worth seeking the help of specialists. The BlooMLM team helps you make the right choice and find the right company. Thanks to the professional approach of our specialists, you will be able to cooperate with a company that will allow you to build a stable income and develop. Specialists understand that it can be difficult for beginners to understand who to trust in the world of MLM. After all, many companies make promises but cannot deliver on them. That is why BlooMLM can be your guide, providing advice and useful recommendations.

Specialists help you determine what to focus on, as well as what indicates a company’s reliability and what indicates risks. Therefore, you will not be walking blindly, because professionals share their own experience, help analyze marketing plans, evaluate products, and assess terms of cooperation.

Want to see how it works in practice? Then take a look at BlooMLM’s selection of case studies. These stories show that you can start from scratch and get support right from the start. Examples of people who have trusted the team clearly demonstrate how the specialists’ approach works and what can be achieved with them.

What is a pyramid scheme?

Let’s continue learning about the difference between network marketing and pyramid schemes. A pyramid scheme is an illegal scheme. It works on the following principle: “old participants receive money from new participants.” In this model, there is no real product or service. The point is simply to attract new investors. They are promised high returns and lucrative offers. But in the end, when new participants stop joining the business, the scheme collapses. A large number of people who have invested their money in it lose it. According to estimates by financial regulators, on average more than 90% of pyramid scheme investors lose all their investments.

It is true that pyramid schemes are regularly exposed. There are many legal restrictions on this type of activity. However, despite all efforts, this type of business appears in other forms. For example, it can be hidden in investment projects, cryptocurrency startups, etc. One thing remains the same: participants are offered huge profits. 

How does network marketing differ from a pyramid scheme?

 The signs of a pyramid scheme, i.e., its characteristic features, will help to understand this issue:

• The product is either non-existent or secondary — in order to create some semblance of activity, companies may offer low-value products, such as non-existent technologies, courses, or PDF files. But their main goal is to collect money from participants. 
• Participants are promised super profits — slogans such as the following are often heard: “Invest $1,000 and get $10,000 a month.” At the same time, they claim that the income can be obtained without much effort. This should raise serious concerns. Deloitte research shows that 80% of fraudulent schemes use aggressive slogans about “excessive profits.”
• There is an entrance fee, and it is mandatory — in order to gain “access to the system” or “the opportunity to make investments,” participants will be forced to pay. 
• Income depends solely on whether new participants are recruited — there are no real sales here. Any profits that participants receive are for recruiting new people into the system.
• There is no transparency in the company’s activities — it is impossible to understand or see any legal documents, the company is registered offshore, the founders are hidden from participants, and it takes a lot of effort to withdraw money, and the process is unclear. 
• Aggressive marketing and pressure — the idea is often put forward that if you miss this opportunity, you will lose your chance to become rich. And this is a lie. At the same time, participants are forced to recruit their relatives and friends into the system. They do this persistently. 
• Short term – usually such a scheme can last several months, sometimes a couple of years. After that, the organizers take the money and disappear, leaving other participants with nothing. 

An example of this is the Ponzi scheme. It was created by Charles Ponzi in 1919. It is a symbol of a financial pyramid. This scheme makes it clear that participation in such a model will inevitably lead to collapse and losses. Hundreds of pyramid schemes operate on this principle today. The MMM schemes in Russia are well known to us; they masquerade as legitimate businesses, but have nothing to do with them. Also, there are now widespread “investment projects” that are nothing more than pyramid schemes. 

It is important to understand this issue in order to avoid falling into a financial trap. It is better to cooperate with companies that are truly trustworthy and time-tested.

Why is network marketing not a pyramid scheme?

The difference between network marketing and a pyramid scheme is that this business model has been proven over time. Here, people earn money from sales and can participate in building a team. This type of business does not use any fraudulent schemes. And MLM companies are not dependent on regularly attracting new participants. After all, everyone’s income in this business will be based on real sales of real goods and services. That is why network marketing is not a pyramid scheme.

MLM companies are characterized by stability and promising growth. Distributors can successfully develop within them, regularly increasing their profits. It is a profitable model that actually allows you to earn money.

The differences between MLM and pyramid schemes are as follows:

• MLM companies operate officially, while pyramid schemes hide from the law. Legal network marketing is legally registered, the company can show its licenses and keeps honest accounts. In a pyramid scheme, financial flows are hidden. Such companies disappear quickly and without a trace. It is dangerous and not worth cooperating with companies that cannot show you legal documents or those that are registered in offshore zones. This is a warning sign that it is a pyramid scheme.
• MLM companies have real products, while pyramid schemes are based on money from new participants. MLM companies sell products or provide services that are used in real life. These can be cosmetics, dietary supplements, educational courses, or household appliances. In a pyramid scheme, none of this exists. It encourages people to invest and recruit new members. There is no product, or if there is, it is only for show. 80–90% of turnover comes from real demand for the product, not from “entry fees.”
• Rapid loss of money in pyramid schemes is a real problem. This will not happen in network marketing, as partners here receive a stable income. This is because in a pyramid scheme, only those who joined the system earlier can earn income. As a result, most participants simply lose their money. In MLM, everything is different. Earnings here will depend on your own and your team’s sales. Thanks to this, partners have the opportunity to have a regular source of income that does not depend on whether new people join the company or not.

When it comes to choosing partners and taking your first steps in MLM, it is necessary to know not only the theory, but also the real stories of people who have successfully navigated this path. Many newcomers have decided to trust the BlooMLM team, and this has become a foundation for their business development. The approach of the specialists is distinguished by honesty, as they are experienced and have a deep understanding of the specifics of network marketing. Thanks to this, newbies can avoid mistakes, make informed choices, and confidently advance in their careers. 

Read the reviews below from those who have worked with BlooMLM. These real impressions and sincere emotions show why the team is worth trusting. Perhaps these stories will inspire you and help you gain confidence in the direction you have chosen.

Conclusion: Is it worth working in MLM?

According to Direct Selling News (DSN), 10–15% of distributors in leading MLM companies earn more than $1,000 per month, and 2–5% of the most successful leaders earn $3,000–5,000 or more by developing their structure and actively selling products. In pyramid schemes, on the other hand, up to 90% of participants lose all their money when the scheme collapses. This highlights the key difference in the debate of pyramid scheme vs network marketing. As we can see, there are many differences between pyramid schemes and MLM. Network marketing is not about making quick money. It is a real business that requires hard work, training, and a competent approach. A legal MLM business will be transparent and offer its partners a quality product. No large investments are required. But when you are promised that you will get rich quickly and are asked to pay a lot of money to register, then you are dealing with a pyramid scheme. Scammers will not offer a real product.

Be cautious and only work with reliable partners who won’t let you down. The BlooMLM team regularly analyzes the market and can help you choose a real, legal MLM company with quality products. You can also get support at every stage. We will help you build a team and increase your business income. Contact us for advice on how to take a step towards an honest and transparent network business in a reliable company. 

Leave a request for a free consultation with BlooMLM experts! We are ready to help you with any questions you may have.

Want to better navigate the world of network marketing? Then BlooMLM will help you find an honest team and start building a stable income. You will have reliable support in the early stages. The team is ready to help you today.

BlooMLM will answer your questions and address your concerns. They will be able to sort everything out and select options that suit your goals. You will have a step-by-step plan that will help you move forward with confidence. 

Leave a request using the form below. Our specialists will contact you shortly and you can discuss which path to choose. This will help you take the first step toward a new business and new opportunities.