What is the difference between an MLM and a pyramid scheme?
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There isn’t much of a difference between the two. Some MLM are most definitely pyramid schemes but not all.
So let’s say you have this wonderful product and you want to have infinite growth. In order to break even you have to find just six ~~suckers~~ who are willing to sell the product. So you at the top find six people. But you realize you can turn them into salesman and you promise them if they can find six people to sell this product you’ll let them have commissions on sales… thus increasing your profit. And then those six people find 36 people who in turn find 216 people who in turn find 1296 people who in turn find 7776 people who in turn find 46656 people who in turn find 279936 people who in turn find 1679616 people who in turn find 10077696 people who in turn find 60466176 who in turn find 362797056 who in turn find two billion people…. who then sit at the ABSOLUTE BOTTOM of this pyramid because there would not be enough people on the Earth to be customers anymore.
And that’s the sort of problem with the pyramid scam. With each level you have someone who is taking their cut from someone’s cut until eventually it fizzles out and the amount of money near the bottom is little to nothing. For most pyramid schemes you will hit bottom far before you can get to that 12th level that encompasses the whole planet because ultimately no product (no matter how good it is) can have infinite growth.
**A lot of MLM can turn into a pyramid scheme pretty quickly**. But for a lot of them there’s one simple thing that makes them into a different type of scam. With a pyramid scheme everyone above gets a cut of all the earnings from everyone from below. This is because the pyramid represents the distribution path of the products. A product that will be moved by 4-10 different sellers before hitting a consumer is just not going to do well in terms of profit (except for the guy on top). The non-pyramid scheme MLM will involve the guy on the top (the company) distributing all products and simply giving a cut of the earnings from people lower on the pyramid to people higher on the pyramid…. but only for so many tiers.
In most of these MLMs the seller who is above only really cares about their people finding people. They don’t care about the people their people found finding people. Because the incentives are cut off at the levels it means your incentives are largely to sell products rather than get others to sell them.
Neither of these business models are particularly good for the person doing the business. You’d much rather be at the bottom of an MLM scheme than a pyramid scheme… but it still doesn’t look great.
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