Not all mammals have fur. Likewise, not all MLMs are pyramid schemes. Learn more about how to differentiate the legit from the illegal.

The term multi-level marketing (MLM) triggers different opinions among people. To some, it brings back memories of friends who became pushy salespersons. Others recall stories of someone who made it rich through an MLM business. And, usually the loudest of them all, there are those who associate the term MLM as the big bad no-no because they have heard all sorts of stories of people losing money after “investing” in MLM schemes.

Afterall, pyramid schemes are known scams and aren’t all MLMs also pyramid schemes?

Actually, no.

Although there are similarities such as the pyramid structure, “uplines” & “downlines”, and signing up people, they are not the same thing. Let’s explore the difference between the legitimate MLM companies versus illegitimate pyramid schemes.

#1. Registered with DSAM?

Legitimate MLM companies allow their members to build up their own independent sales business through a network, hence the term multi-level.

Multi-level marketing is a form of direct selling. Direct selling is when a direct seller approaches a potential customer before the customer approaches you, to sell them your products or services. Products and services available in the Malaysian direct selling market are wide-ranging such as water filters and vitamin supplements.

Like wolves in sheep’s clothing, there are plenty of scams out there that pretend to be direct selling companies using the MLM model. Checking the Direct Selling Association of Malaysia (DSAM) website is an easy first step towards identifying the legitimacy of the MLM company.

#2. What Products/Services?

Legitimate MLM companies offer a range of products/services that people are interested in buying. Products are usually well-made and of good quality. Members sign up for either or both of two reasons:

  • To buy and use the products/services themselves.
  • To build a business from selling the products/services to others.

With pyramid schemes aka illegitimate MLM companies, products/services may come with suspicious credentials or with price tags that do not quite match what is being sold. Some may even sound really promising but turn out to be otherwise, such as some miracle liquid that cures cancer or “gold” bars that turn out to be not gold at all.

Look out for fake MLM companies that insist on you buying up a large number of products at the start with no chance of a refund.

There are also fake MLM companies that essentially sell no goods/services but instead are focused solely on selling you the dream of wealth and success with minimal effort but large monetary investment. This should raise red flags for you. Afterall, if you’re not selling any product/service, how can you be doing direct selling?

It is worthwhile to learn more about the products/services the company offers before you sign up. Frankly, if you don’t believe in the quality and prices of the products/services themselves, how can you build a business selling them?

#3. How Important is Recruitment?

In both business types, the idea is to grow your network by having more downlines aka recruiting new members who “report” to you. However, there is a key difference.

  • With legitimate MLM companies, you grow your network by recruiting more downlines in order to earn commission when they do either or both of the following.
    • To buy and use the products/services themselves.
    • To sell the products/services to others.
  • With fake MLM companies, you focus on recruiting new members. You profit from recruitment fees.

Legitimate MLM companies ask for each new member (downline) you recruit to pay a either nothing or a small registration fee which is likely refundable. Training, either for free or for a small fee, is possibly provided with a focus on teaching members about the products and how to sell the products.

Illegitimate MLM companies focus on profiting from recruiting as many people as possible. Each new member has to pay a steep membership fee, likely non-refundable. Depending on the scheme, new members may also be lured into “investing” big amounts of money with the promise of lucrative returns. Training, if provided, focuses on how to recruit more members and usually costs a pretty penny to enroll.

The term pyramid scheme came about from the pyramid structure of exponential recruitment – you recruit 5, those 5 recruit another 5 each, so on and so forth. Every new member’s membership fee gets absorbed by the company and the uplines until eventually the community is exhausted of new bodies to recruit.

Frequently Asked Questions

FAQ #1: What is wrong with earning from just recruitment? As long as I earn, should I care?

Firstly, it’s illegal to be paid to recruit.

Secondly, it’s about the sustainability of the business model.

You recruit 10 people, each of your 10 people recruit another 10 people, and the list grows exponentially. Inevitably, you will run out of people within the community. When there is nobody else to recruit, there is no longer any money coming in.

Meanwhile, if you are recruiting and selling, no matter how your network grows exponentially, you’ll always have money coming in because people are using the products/services. As products/services are consumed, more refills will need to be obtained. Even if the entire community has signed up, the money continues to roll in.

Thirdly, you will likely start recruiting your family members and friends. Likely your upline in a fake MLM will coach you on how to sell the dream with promises of easy money in return for higher investments. When the business fails or the company disappears overnight, will you be able to face your relatives and friends?

FAQ #2: I’ve been approached by a illegitimate MLM company. Where can I report them to?

It’s best to first contact the Direct Selling Association of Malaysia (DSAM) to gain their insight on this company’s status.

FAQ #3: Can people really be successful in legitimate Direct Selling / MLM businesses?

The short answer is Yes. However, there are daunting statistics about the success rate with an estimated 25% making money and less than 1% making serious six-figure and above money. Study your prospective MLM business in advance to see if you feel you can succeed at it.

The business model for legitimate MLMs is usually simple. A common theme is:

  1. Use the products/services yourself first.
  2. If you like the products/services, share it with your friends where you earn commission from selling.
  3. Sign up downlines who wish to also earn commission, earn commission from their sales and get compensated more as you progress up.

As simple as it is, it usually still requires a lot of hard work and determination. If you feel you’re willing to give what it takes, you can try out legitimate MLM companies and with some research you may find one that suits you best.

Conclusion

A legitimate MLM business can indeed be a viable source for side income or even as your main income. You can even consider signing up in order to take advantage of their available training programs. However, it is important that you differentiate the legitimate from the illegitimate in order to stay on the right side of the law, to be sure you are sharing good things with your friends and family, and last but not least to ensure you are earning a wholesome income you can be proud of.

 

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Have you been scammed in a illegitimate MLM aka pyramid scheme?  Share with us your story in the comments.