Many people think of Multi-Level Marketing (MLM), Direct Sales, Network Marketing, Affiliate Marketing, Pyramid Schemes, and Ponzi Schemes as one in the same. They are actually different in varying degrees.

Direct Sales

Direct Selling is used by global brands and other smaller companies to market products and services. In fact, its the oldest distribution channel in history. Peddlers in Babylon in 2000 B.C. are known to be the earliest. It was important to trade growth in the Middle Ages. DS was one of the first opportunities for women to earn their own income with Avon starting up in 1886.

Today, Direct Sales engages more than 120 million people and involves $180 billion globally. The basic concept is you purchase products at wholesale from a company and sell at retail price. No recruiting a team. Your income is based on sales. The company doesn’t need a huge marketing or advertising budget because the distributors are marketing for them.

Network Marketing/MLM/ Affiliate Marketing

Network Marketing (NM) and MLM are quite similar and are forms of Direct Sales. They both involve purchasing wholesale products and reselling at retail, but they add in the recruiting factor as a second way to earn money. Commissions are earned based on the sales of the team you built below you. A better way to look at commissions is that the company is paying you to mentor and train the next member of the marketing team.

The difference between NM and MLMs is that MLMs are more aggressive in the recruiting and commission claims. For example, NM commissions are earned on recruits 3-5 levels below you, where MLM commissions are earned 10 or more levels below you.

Network Marketing memberships can be thought of as mini franchises. You pay a fee to become a distributor and get access to wholesale product that you in turn sell at full-retail price, and there’s a bonus for training a marketing team. People do the same with fast food franchises. They pay (lots) of money for the rights of the restaurant branding and “products” and they get branded menu items at wholesale to sell at retail. Unfortunately, there’s no training bonus. That’s a little oversimplified, but you get the gist.

Affiliate Marketing is another arm of Network Marketing where you share products with people and provide a link to where consumers can purchase directly from the company. No need to keep inventory. You get a commission from the company as a thank you for “advertising”.

Pyramids

Pyramids rely solely on recruiting and involve no product sales. They take money from new recruits and give it to the people above them. This is ILLEGAL and the FTC will shut them down. If a NM company focuses too much on recruiting, then they can also get shut down.

People see the recruiting structure of Network Marketing commissions (multiple levels of team members below a person) as a “pyramid” and therefore see an erroneous link to illegal pyramid schemes. The levels of commission earned in Network Marketing is associated with bonuses provided by the company for marketing their product and training a team. It doesn’t involve taking money from people below them.

Ponzi schemes involve money being taken but never given out. As an example, a real estate guru takes investor’s money to invest in some development that will eventually be sold for profit. Said profit will go back to the original investors. Only…. There was no development, and the “returns” documents the investors received were fake.

The Answer: No

Direct Sales, Network Marketing, Affiliate Marketing, and MLM are NOT Pyramid or Ponzi schemes….. most of the time. It’s important to do your due diligence when looking into any company and see if their structure and strategy makes sense. Even a legal MLM can be too good to be true.

A final thought on the whole “pyramid” comparison and the accusations that only the people in the upper ranks benefit. I ask you to consider the typical corporate structure. Companies have CEOs and presidents at the top with VPs and middle management below them, and the workers are at the bottom. The higher you go in the structure, the more money you make. What is the likelihood you will work your way to the top of the “corporate pyramid” and earn that CEO position and paycheck?

With Network Marketing, you become the CEO of your own company from day one. Your paycheck is linked directly to how hard you work, and you are rewarded immediately. No performance evaluations. No competing for a promotion.