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:
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.
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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…
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?
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.
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!!!