What is the difference between MLM & Pyramid?

Considering an MLM opportunity?

 It may well be a legitimate MLM business. Or it may be a pyramid scheme.

Many people automatically associate a negative connotation with buzz words like multi-level marketing and downline. These people assume that those words denote a pyramid scheme and that the opportunity attached to those words is a scam. However, this is simply not true. If you know what to look for and what to avoid, you will be able to detect a true pyramid scheme from a potential money making opportunity.

As an MLM participant, you make your money by selling the MLM products to other MLM participants. If they're not already a member of your MLM company, you sign them up. Besides earning money off your own sales, you also earn a percentage of the income generated by the distributors that you've brought into the MLM plan (your downline). Often there are bonuses for selling particular amounts of MLM product or signing up a certain number of new members. (Many affiliate programs operate in this same way) But usually there are no fee's involved in becoming an "affiliate".

Like MLM, pyramid schemes depend on recruiting people to become distributors of a product or service. Like MLM, the pyramid scheme offers the opportunity to make money by signing up more recruits and by accomplishing certain levels of achievement.

The big difference between MLM and pyramid schemes is that MLM is legal and pyramid schemes aren't. But it can be very difficult for the person looking for a business opportunity to tell the difference between a legitimate MLM opportunity and a pyramid scheme at a glance. How do you tell whether it's a legitimate business opportunity or a scam?

1. A pyramid scheme is a non-sustainable business that involves the exchange of money, usually in the form of a sign-up fee, and usually has no product or service. ( because of this I personally consider cash gifting programs a scam as well)

2. The only people that are able to make money on a pyramid scheme are the people at the top of the pyramid.

3. Because pyramid schemes offer no product or service, no possible way exists for the people at the bottom of the pyramid to make any money. The only way to make money in a pyramid scheme is to sign-up new members for a fee. However,  this becomes impossible when the scheme reaches a certain level. The end result is that people can spend upwards of several thousand dollars to enroll in one of these scams and will end up losing everything.

Multi-level marketing companies follow a similar concept to a pyramid scheme, which is a reason for most of the confusion, except that two significant differences exist.

• One difference is that members at any level of a multi-level marketing model can make income through the companys products and/or services without signing up any new members.
• The second difference is that members of any level in a multi-level can advance past the people who signed them up.
• Finally,multi-level marketing companies are indeed Legal!

By following these guidelines, you should be able to tell the difference between the two types of companies. Some pyramid schemes are very cleverly hidden. If you should encounter a company like this during your entrepreneurial journey, and you discover that you cannot make a conclusive decision as to whether or not the company is a pyramid scheme, it is best to error on the side of caution and avoid the situation!

Source: http://www.wikihow.com/Distinguish-Between-a-Pyramid-Scheme-and-Multi-Level-Marketing (edited version)