Many people believe that the majority of direct sales or network marketing companies are pyramid schemes that are doomed to fail. As these companies fail, the people who have invested time and money will also fail.

With the rapid growth of the internet marketing and direct sales industry, it is important to know the differences between a pyramid scheme and a legitimate company.

What is a Pyramid Scheme?
In a totally naked pyramid scheme, no products are sold.

One person recruits several other people to participate in a “get-rich” investment. Each new recruit is then required to recruit several more people. This process continues until there are too few recruits at the bottom of the pyramid to effectively support those at the top.

In a pyramid scheme that uses a product, a distributor would recruit several people to sell products. These people need to pay a specific fee to receive their products. The distributor will keep a certain percentage of the sales of each recruit. These recruits also need to recruit others to sell beneath them. The recruits are informed that the most efficient way to make money is to concentrate on adding new recruits. This process continues until the bottom of the pyramid is unable to support the top.

Some people do make money in a pyramid scheme. The individual who creates it and the first few levels usually come out ahead. However, individuals beneath the tipping point usually lose their initial investment in addition to the time wasted in a futile endeavor. Studies have shown that 90 to 98 percent of participants in pyramids schemes lose money. If you are not in at the top of the pyramid, the chances are slim that you will make any profit.

What is a Network Marketing Company?
Some marketing companies may be pyramid schemes, but reputable ones are legitimate businesses that rely on great products, good customer service and incredible people to make a profit. In a legitimate direct sales company, a team member is not required to recruit others. They are also not required to spend a large amount of money to begin their businesses. The growth of the company depends on sales and not the number of recruits. Recruiting team members is one way to increase your business, but it is merely an additional stream of income and is not the main goal of the company. A pyramid scheme relies on recruits; a direct sales company relies on sales.

Determining whether an opportunity is a pyramid scheme or a reputable networking business is not always easy. It requires a detailed examination of the company’s compensation structure and an economic analysis of fees, sales and profits. Determining how the money flows through an organization is crucial when deciding to get involved in direct sales. Before you join, it is essential to learn about a company’s track record, their product claims, the pricing of the products and their reputation in the market. Don’t just jump in because the website looks great or the potential income sounds unbelievable. Do your homework and it is possible to find a legitimate direct sales business that is ideal for you.

In a legitimate company everyone has equal opportunity to get ahead. In a pyramid scheme that is not the case. Only those who join first will earn any money.

Deb Bixler provides ‘How To Guides’ for direct sellers and work at home consultants.  Learn more about how to research a company and learn what is a pyramid scheme so that you join a legitimate network marketing company and do not fall victim to a pyramid scheme.


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