MLM Funnel Schemes

Pyramid schemes are illegal

The reason why I want to tell you a little more about MLM funnel schemes? Just because I realised that the first thing you get hit with, as soon as you google for working at home ideas, you come up with hundreds of suggestions for such MLM pyramid schemes, without having a clue as to what they mean and, most importantly, whether they are genuine earning opportunities or just scam. So, let me shed some light.


What Is An MLM?

I’ve been toying with the idea of writing about MLM schemes, but never really felt comfortable to talk about them as, I am sure like many others out there, I have struggled to understand the difference between MLM, pyramid and affiliate marketing programs.

There are two main issues here, which, the more I have researched, the more often I have kept coming across: the fact that pyramid schemes are illegal, and the equally not helpful fact that, in reality, it is very hard to find a down-to-earth explanation.

So, here’s my very down-to-earth school kid explanation.

MLM (or multi-level marketing) schemes are a form of affiliate marketing working like this:

  • You recruit Affiliate A earning x% from the sale, either on recurring or as one-off commission;
  • Affiliate A recruits Affiliate B, and you earn y% from A’s sale, again either on recurring or one-off commission (whilst Affiliate A earns the same 1st tier x% commission);
  • Affiliate B recruits Affiliate C, and you earn z% from C’s sale, in recurring or one-off commission (whilst A earns 2nd tier y% and B earns 1st tier x% commissions respectively).


Let me give you an example using what I believe is the most user-friendly and generous affiliate program available online: Wealthy Affiliate.

Wealthy Affiliate affiliate program is NOT an MLM program. But If use it by comparison, you may better understand.

Let me show you WA referral scheme in a picture:

WA Referral Scheme is NOT an MLM scheme

On WA you earn x% commission whenever you recruit Affiliate A – and you will keep earning on a recurring income for as long as Affiliate A pays its monthly or yearly WA membership. That’s what this picture tells you.

When Affiliate A goes onto recruiting Referral B, you do not earn anything, but Affiliate A will join the same referral commission scheme which you monetized from when you first recruited A.

Do you understand the difference now?

A pure and simple affiliate marketing program is NOT based on a tier scheme.


How To See The Bad Apple Before Tasting It

MLM schemes are NOT illegal. There are so many valid schemes out there, which are highly recommended and rated as there is concrete evidence of people making real money out of them.

You may also be interested in this:

But in order for an MLM program to be successful, there must be a mathematical formula which has to be fulfilled.

Nope, don’t worry, if I understood it, so can you.

So, here it goes…

The sum of all the commission rates from all the tiers mush always be less than 100%. This is because commission is paid from money an affiliate pays to join the scheme, and if after the purchase has been made and all commissions are paid to the upper tier affiliates (also known as uplines), there is no money left for the actual company running the scheme, the company would not survive.

Which leads me, without further ado, to the pyramid schemes

Pyramid schemes are illegal


What Are Pyramid Schemes

In an MLM environment, commissions are paid to the different tier affiliates directly and solely using the money received from the sale of a program, service or product.

To the naked eye, a pyramid scheme is very much the same as an MLM scheme. In reality pyramid schemes use part of the commission that should go to every tier to pay their uplines – which means higher profit is left for the very top tier (or founder of the tier), and de facto each tier gets less than promised.

For this very simple reason, pyramid schemes are ILLEGAL.


What Am I Actually Selling???

The other issue to look out for, and where MLM programs can equally sound most genuine when in fact they are not, is whether there is an actual product to sell.

A genuine affiliate program and a legal MLM company will sell a service, a program or actual merchandise.

Let me give you a couple of examples that, I am sure, most of you will be familiar with.

OK, who doesn’t know the worldwide brands Avon and Herbalife? Avon has one of the most successful MLM programs

Simple, if you’ve never heard of them, drop me a line in the comment section at the bottom of this article, and I shall be more than happy to help you out there.

But I am sure most of you will know that both brands, Avon for make up and cosmetic products, and Herbalife*, targeting well being herbal products, do adopt a well affirmed and successful MLM program.

This is because, when you join as an affiliate or member, you will have been recruited by one of their members, who will earn commissions from your sales on the make-up or food supplements, as well as from their direct merchandise sales at the same time. And the same will be for you.

On the other hand, I myself have come across several potential pyramid scheme. I say ‘potential’ due the fact that these schemes are still out and about, and still attracting recruits. But, forgive my naivety or blindness, the point is that I do not see what they are selling me, and what I should sell others, other than the idea of recruiting others to join in a scheme at a price and … to recruit more people.

Now, to me a program that sells nothing more than the idea of recruiting will not survive forever … and it’s SCAM.

And that it why pyramid scheme are ILLEGAL in most countries worldwide.

(*) I have just learned, as part of my research for this article, that Herbalite has at different times been accused of pyramid scam ventures, which have attracted a few potential lawsuits. All cleared now, the company strives stronger than ever.

How To Recognize A Scam MLM or A Pyramid Scheme

Yes, as far as I am concerned a ‘bad apple’ MLM is none other than a pyramid scheme.Some MLM schemes are none other than scam

But, even after all the theory, it still remains unclear to the unwise ones like me, how to truly work out whether you are about to embark in a scam, which is going to steal hundreds of dollars out of your purse, or whether you are facing the opportunity of your lifetime.

On the other hand, dodgers are not going to spell it out that what they are trying to sell you as a genuine business proposal, is in fact nonetheless than scam.

So, this is what you need to ask yourself in order to make a more informed choice:

  • Are you asked to pay up a large amount of money? – a genuine MLM may ask you to pay for marketing tools and merchandise, but it should never be a large amount of money;
  • Does the company buy back stock that you may not have used as distributor or as trainer to your team of distributors? – stay away from those companies that will ask you to purchase a stock, but will not be prepared to refund you for the unsold merchandise;
  • Is the program you are about to join focused on recruitment more than on promoting an actual product? – pyramid schemes or scam MLM will not be interested in promoting a product (and some do not even have a product to promote), but will concentrate their efforts on you recruiting people to join the scheme at a fee, and these are the schemes you want to steer clear of.

Particularly with regard to this last point, if you realise that the company trains you primarily on recruiting staff, you will also notice that they offer higher commissions for recruiting than for selling merchandise. Again, this is a clear feature of scam programs.

No matter what you do, make sure you do your homework and look for reviews and feedback. And, if still in doubt, seek advice from your local trading standard authority to find out whether the business you are looking into is being investigated for fraud.


My #1 Recommendation

My research is not going to stop here. Because so far I have not joined any MLM programs yet. I like to take it one step at a time, and do not like to part from money which I have earned through hard work, unless I am sure of what I am doing.

But I shall keep searching, until I find a few MLM companies which I am happy to propose to you.

My #1 recommendation, however, is and will always remain the basic affiliate marketing scheme.


So, here’s some more questions for you:

  • You want to work from home but don’t know how to start?
  • You have heard you can make money online, but don’t know how?
  • You would love to blog and share your passion with the big internet and social media audience, but you don’t know how to monetize from your blog website?
  • You want to create a website, but again you don’t know where to start from?
  • You are looking for an online course that will teach you how to become an online entrepreneur?
  • Maybe you have an online website already, but do not know how to make your online business successful?

My #1 recommendation to you, if you want to fulfill all the above questions is:

Talking of reviews and feedback, have you wondered why, no matter how hard you search, you only come across positive feedback on Wealthy Affiliate?

Well, you probably have already answered your own question. Like with restaurants, where they say the best review is to see them packed with patrons, Wealthy Affiliate’s unbeatable reputation as the #1 Affiliate Platform University comes is put at the forefront by the testimonials of its members. So, what are you waiting for, click the below picture to join Wealthy Affiliate today, you will not regret it!!!

WA Marketers Worlwide


10 thoughts on “MLM Funnel Schemes”

  1. This is a great review and information on MLM’s for people who do not know what they are. It is also very insightful about Wealthy Affiliate. I am actually a user of both types of programs. Specifically, I have been a member of Wealthy Affiliate for quite some time. Yes, it works if you work. I think that is true for most business. It is a real genuine business that when you put work in it returns and profits. I love WA and am having great success.
    I also know there are a bunch of very bad horrible companies out there that try to duplicate what WA does with outrageous fees and poor training too. I started with one. It almost steered me away. So glad I gave WA a try!
    As far as multiple level marketing you are right. There is probably more bad than good out there but just like WA there is I believe good ones, or at least one. If you see the warning signs like you put here in the article those are great indications. I joined an MLM company that has no cost, tiered earning with set commision rates on products. Although divisions of profits work down in a chain as you describe it does not eliminate legitimate earning potential.
    So yes be very leery of MLM most are scamming. But I would say there may be a few that are legitimate opportunities that can help create additional monetary streams.

    1. I couldn’t agree more about Wealthy Affiliate, Christina, of which, as I am sure you know, I am also a member. I shall write about it in the near future again, as some deem WA an MLM funnel program, and I have to say, that could not be further from the truth. Like you, I came across bad apples in the past, and fell for the dream prospect of unrealistic promises. Then I found WA and … well, I am still here, and that should be enough proof that WA is one of the few good apples.
      I hope I didn’t come across too gloomy when I wrote about MLM. All I wanted to outline is the signs to look out for before we embark in a new business ventures. There are good business opportunities out there for home-based entrepreneur, and as you confirm. It is just a matter of remaining alert and aware.
      Thank you ever so much for your contribution, Christina, and I sincerely hope to hear from you soon again 🙂

  2. Hi Giulia,
    thanks for this really easy to understand review. I’m one of those people that gets suckered into signing up for schemes that promise fortunes and fame but of late I’ve focused on doing it for myself.

    I knew about Pyramid schemes but i hadn’t heard of MLM and now that I’ve read your article I can see that some of the “Opportunities” I’ve been offered are exactly that.
    I shall be much more vigilant in future, thanks to you.

    1. Anna, I am so pleased I could raise awareness about some of the pyramid schemes out there to get your money unfairly and dishonestly. Don’t get me wrong, some programs have been there for ages and are there to stay. They are those successful programs which people have genuinely made a realistic income from, and some people have in fact made a fortune out of them. But some of them are not so genuine, and that’s why I wanted to raise alarm bells as to which signs to look out for.
      Thank you for taking your time to leave a comment, and I hope you will visit my site again 🙂

  3. Giulia, this was a very informative article and I think many moms including myself can get a lot out of it. Thank you for explaining the difference between a legitimate MLM company and a pyramid scheme company first of all. I think a lot of people confuse the two and I also think it hinders a lot of people too.

    I used to be part of an mlm company for years and my husband and I made a lot of money and helped many other people do the same, so it is absolutely a great thing to try if you choose the right company!

    Thanks for the info and I’m glad you mentioned WA because in my experiences this is one of the best out there!

    1. I am so please to hear, Kayla, that you are testimonial to the fact that some MLM companies are actually good – in fact, they are very good. There is no doubt that, if you find the right company, you do make money and you can become extremely successful in your own right. Wealthy Affiliate is one of those companies. I would not class WA an MLM funnel company, but rather a pure affiliate marketing opportunity. There are no tiers involved there, other than WA as a company, you and your referral – that classes as one tier, with part of what you pay for your Premium membership going to WA as a company. But I shall write more about it in a very near future. So, I hope you’ll stay tuned and contribute with more of your insightful comments. For now, thank you 🙂

  4. WOW, Congratulations on this article!

    I am actually in a great MLM Company and I love it.
    But since I live in germany, people over here are very!suspicious about MLM or Online Marketing, it is hard to go on in this business.
    I even lost friends because I did not let go of my business.
    But they never made an attempt to hear and experience what I had to
    say on that.
    So I can truly say I’ve made a really good job on this research.
    So, with your permission ;), I will use this post to answer all the questions next time I come across someone who want’s to hear about the difference.

    Just as you I have had my fair share on scams about onlinemarketing sites, I even lost a lot of money.
    But as I was to give up I found, guess what, yes, Wealthy Affiliate, and you are right.
    It works when you work. I love it and I am really grateful that I have found this opportunity when I was on the brink of giving up.
    And soon I will be a proud owner of my own blog.

    1. Oooh yes Marion, I know Wealthy Affiliate very well, because like you, that’s where I learned how to build a successful online business.
      I can understand when you say people do not welcome the idea of an online business. Even if living in UK, I am still keeping my little venture quite secret from most of the people I know. Not to speak about my home land, Italy, where mistrust for everything online is so widely spread, that online grocery shopping is still something of the future. Let alone the idea of actually making a living out of an online business!!!
      Sometimes, though, you may want to read this as good news for you. You might find that, if you have a website promoting online marketing etc, your website may become ground breaking and start gathering more traffic than you may wish for. Remember, it will take time, but I am confident success is just round the corner for you!!!
      Thank you very much for your kind words, and speak to you soon, I hope 🙂

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