In my effort to educate the world on the power and beauty of the direct selling/MLM/network marketing industry, I thought the “pyramid” question would be a great place to start.
Since I started my business in 2009, I can’t tell you how many times I’ve received this question. Back when I started, I certainly didn’t know the definition of a pyramid, but I educated myself quickly and realized there was/is universal confusion about the true definition of a pyramid…so let’s clear that up today.
Pyramid schemes are an illegal form of multi-level marketing through which one’s earning potential depends primarily on recruiting new distributors. (You pay a fee, which then gives you the ability to recruit others who pay a fee, etc.)
Pyramids promise large earnings with little effort and that you can accrue significant income simply by recruiting others into the operation. There may or may not be a product or service to sell, but if there is, it generally has little to no value. Inventory-loading may be encouraged – convincing people to purchase a sizeable amount of inventory which is not easily sold to others and cannot be returned.
This graphic illustrates how a pyramid works:
Now, here’s what a legitimate multi-level marketing business company looks like:
They sell high-quality products and services that offer a sustainable stream of income for the representatives choosing to promote the products. In addition, they…
– Provide accurate information about the company, its products and what one can expect as a seller of the company’s products and services.
– Charge a nominal fee for a starter kit – the median cost for the start-up kit is $99 and usually includes items such as samples, catalogs, order forms and other tools that help the seller begin selling.
– Have a product or service that is competitive in the marketplace and is purchased by the ultimate user.
– Require sellers to hold little or no inventory and has a buyback policy to protect against inventory loading.
– Base compensation primarily on the sale of products and services to the ultimate user. Compensation can be generated from either your own sales or the sales of others you have recruited.
– Take time to describe the business and give potential sellers adequate time to make a decision – any opportunity worth having will be there tomorrow.
Legitimate direct selling companies also promote consumer protection and guarantees. Many of these are voluntary standards that exceed the requirements of any regulations created by the Federal Trade Commission (FTC) or mandated by federal or state law. Members of the Direct Selling Association have also pledged to abide by a strict Code of Ethics that outlines a high set of standards for interactions with both sellers and customers. (This info describing legit direct sales companies came from a handout created by the DSA – Direct Selling Association.)
This graphic illustrates how a legitimate multi-level marketing business works:
Unfortunately there’s a bad egg in every basket. I’ve seen money-hungry individuals jump into a legitimate direct sales company and employ some of the shady practices affiliated with a pyramid – i.e. inventory-loading, pressure to make a decision quickly, sole focus on recruiting, etc.
I’ve even seen some of this happen through a shady individual or two with my own company. For example, our company offers 4 different business start-up kits. They are $45, $395, $695 and $995. I was speaking with one person who told me she just couldn’t afford to get started – said she couldn’t put out the $1000 to start her business. I told her I totally understood, that everyone’s budget is different and that she should consider one of the smaller packages like the $395 kit. She looked at me like a deer in headlights. “What?” she asked. I repeated myself. She said she didn’t even realize there were other options, but that she could start small if that was possible. It’s disappointing to hear that she was misinformed by another rep with my company, however, I also see this as an opportunity to make things right by putting all the options out on the table and earn that person’s trust.
In another situation, I overheard a rep say they wouldn’t work with anyone who starts with anything less than the $695 kit. Really? Unacceptable. The good thing is, these low-calibur, unethical reps don’t last long. They get weeded out pretty quickly. And this is where I, as a passionate network marketing professional who is in this for the long-haul, choose to educate others, work with integrity and focus on helping others create powerful, sustainable businesses so we can lift up this industry as a whole. These unfortunate instances are a reflection of the individual, not the company involved or industry as a whole.
In addition, these examples illustrate the importance of not only vetting the company you’re considering, but vetting the person potentially sponsoring you in the company as well.
At the end of the day, if you’re considering an opportunity that sounds too good to be true, it probably is. Do your research. Make sure the company is a member of the DSA. If you have a $500 budget to start your direct sales business and they only show you a $1000 kit, ask if there are other options. (In the aforementioned situation, had the person visited our business site, they could’ve reviewed a full breakdown of all 4 kits. I’m by no means defending the shady rep…just illustrating the importance of taking research into your own hands, since this is a business investment we’re talking about here…)
There are many incredible network marketing companies and many high-integrity reps who are operating ethically and supporting their customers and teams well, so don’t let one story or a negative perception deter you. This leads me to a future blog topic…very soon I will be sharing about how to pick the right network marketing company for you, so stay tuned. 🙂
In closing, I will leave you with a quote by Jim Rohn – “Formal education will make you a living; self-education will make you a fortune.” Knowledge is power and I hope what I shared today enlightened and empowered you.
Tell me…do you have a specific question about this industry? Did I share a perspective you’d never considered before?