MLM vs. Pyramid Scheme—What’s the Difference?
If you’ve ever considered going into direct sales, you may have been told to stay away because you shouldn’t get involved with multi-level marketing (MLM) and pyramid schemes. However, what many don’t realize is that direct sales, MLMs, and pyramid schemes are not all the same. Learn the facts behind an MLM vs pyramid scheme—and how direct sales are different.
What’s an MLM?
MLM stands for “multilevel marketing,” a business model where independent contractors (sometimes known as “representatives” or “distributors”) make the majority of their money by recruiting others to work for the company. MLMs are also referred to as network marketing. You can also make money from sales, but a large chunk of your income will come from recruiting others. Many companies that claim to be direct sales companies are MLMs, and therefore a portion of your income will depend on how many people you can get to work under you.
While MLMs are not necessarily bad businesses, many people are skeptical of them due to their ability to turn into pyramid schemes.
What Are Pyramid Schemes?
Pyramid schemes are illegal in the United States. In this “business model,” the primary source of income comes from a person’s ability to recruit people into the business. However, there is very little-to-no focus placed on selling actual products. The purpose of a pyramid scheme is to get your money, especially by requiring you to “invest” a large sum of money upfront. Most sales organizations will require a small fee to begin selling with them, but that fee should not be large. The emphasis is on recruiting others, not making sales and moving product.
According to the U.S. Securities and Exchange Commission, pyramid schemes share these characteristics:
- emphasis on recruiting
- no genuine product or service sold
- promises of high return in a short period of time
- easy money or passive income
- no demonstrated revenue from retail sales
- complex commission structure
What Are Direct Sales?
The direct sales business model is used by many of the most profitable companies in the United States. For a reasonable price, entrepreneurs purchase an inexpensive “starter kit” and are able to sell products offered by the company they represent. Distributors may use any number of sales tactics, such as door-to-door sales and internet advertising.
The focus of a direct sales business model is entirely on selling products; that’s how distributors make their money. Direct sales involves delivering items and services to customers directly, instead of through a traditional “brick and mortar” store. Products are advertised through independent sales representatives that work one-on-one with customers.
For example, Kaeser & Blair uses the direct sales business model to give people the opportunity to own their own business. Our Business Owners make their money from selling promotional products to people who need them and make a commission off of those sales.
Learn More About Direct Sales from Kaeser & Blair
Kaeser & Blair is a promotional products distribution company that gives people the opportunity to own their own promotional products business. The focus is entirely on sales—we even offer comprehensive training! Learn more about who we are and what we do, or contact us for more information.
