Know The Difference Between A Pyramid Scheme And MLM

For years people have been confusing multi-level marketing or MLM with Pyramid Schemes, even though the 2 are on absolutely opposite ends of the spectrum. This confusion between the two has often resulted in people joining all the wrong sorts of pyramid schemes to lose their money, or in people not believing legitimate and highly profitable MLM plans, and thus losing the opportunity to make a good amount of money. 

However, the real question is, how come this confusion is still prevalent in the age of the internet? And what is the difference between MLM and Pyramid schemes? Are they the same thing? If not, how does one even identify which is which, and how to avoid the bad one? All of these questions have answers that this blog will try to address in the most thorough manner possible. 

What Is MLM?

A multi-level marketing effort or MLM is a network of individuals directly selling products directly to the public. The main aim of MLM is to increase the sales force by recruiting newer faces and increasing the overall reach of the company.

The representatives and promoters get a small commission out of their sales, as well as a small compensation for recruiting more members. It is a structured and legal way of business that promises real products and real benefits to the consumers and to the sales representatives.

What is a Pyramid Scheme?

A pyramid scheme is a fraudulent cycle or scam where people are recruited under the false promise of top-notch products and highly luxurious benefits. These people are then encouraged to recruit more people to the scheme in order to ‘win’ additional benefits and high rewards in a rather short period of time.

This is done by encouraging the representatives to recruit more and more people, with no sort of products involved. 

MLM vs Pyramid Scheme

Needless to say, Pyramid schemes are illegal as they are basically just scams that disguise themselves as Multi-Level Marketing Programs. There are no real products involved with no real benefits or any kind of compensation planned for the participants.

In MLM, the profit comes through recruitment and through selling products. However, pyramid schemes only rely upon recruiting people and charging them a joining fee. 

Because there is no tangible product being sold, there is always an easy way to tell one from the other. This is because pyramid schemes only work on getting your money out of you and encourage you to recruit more distributors. MLM, on the other hand, works on the principle of moving the products. With more distributors, the company will sell more products. 

How to Recognise and Avoid a Pyramid Scheme?

Whenever you are pitched the idea of an MLM, ask yourself a few of these questions to understand whether you are face to face with the real deal or a Ponzi scheme.

       How big is the investment? Considerably large investments are a sure sign of pyramid schemes as MLM usually does not have huge start-up funds.

       Does the company buy back inventory, especially when you paid for it? Legitimate MLM companies always give you the option of buying back the leftover inventory at about 80% of the value.

       Is there any focus or attention on the market? MLM companies are based on moving products, and that is why they focus on setting up a market. If they are not serious about that, you must not be serious about them either.

       Does the company emphasize more on recruitment or selling? Pyramid schemes focus on making fast money through recruitment. If that is all the talk that you hear, run in the opposite direction.

       Is the plan more about making money through recruitment instead of the sales that ‘you’ make? It is a signature pyramid scheme.

Do your research before you make a decision. Going into the past records and legal certifications of a company is important as that allows you to gather more information about their legitimacy. Talk to people who are involved or know about the field. Most importantly, listen carefully to the claims that they make. Highly inflated claims are the biggest telltale signs of a Ponzi pyramid scheme.


Being a part of a successful Multi-Level Marketing business is a fun and learning experience where you earn huge benefits from the work that you do. But pyramid schemes take the fun out by ruining the name of MLM. This is why Dayjoy, ranked in India’s top MLM company list, carries all the important legal information about the legitimacy of the work that we do, alongside offering FSSAI-approved products to our consumers. To join Dayjoy’s MLM effort, get in touch with our experts today. 

Read More: How to Automate Your Network Marketing


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