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Is Network Marketing A Pyramid Scheme?

Is Network Marketing A Pyramid Scheme? The phrase “pyramid scheme” is frequently used in network marketing. What is the cause? This contrast is constantly presented to networkers, especially when contacting new partners or in their own surroundings. However, the comparison is biased because the disparities are obvious.

Let me address this question directly: No, network marketing does not include a pyramid scheme or ponzi scheme. The explanation or evidence is straightforward:

Products are sold via network marketing or multilevel marketing. In a pyramid scheme, no. It simply indicates that there is no consideration or value for any payment made in a pyramid scam. Network marketing, on the other hand, is a conventional commercial transaction.

Why Do People Continually Mix Them Up?

People who work with a network marketing organization or multi level marketing companies purchase items directly from the mlm company and use them themselves. If they are convinced of the items, they may market them on their own as a distributor. This implies they will be acting as independent new distributors for the mlm business. This occupation is also known as a sales representative or mlm salespeople. A long-standing occupation. They receive a sales commission on each transaction as reps.

A structure is formed if one of their own consumers decides to offer the items, i.e. become a representative. A sales representative virtually recruited another mlm participant! Because of this, network marketing is also known as “structural sales.” In this scenario, two sales reps are compensated for their efforts.

Network Marketing Distribution Structure

In theory, network marketing or multilevel marketing distribution is no different from any other distribution. Only that the designations may differ somewhat. A sales manager, for example, works in a typical sales department. Regional directors report to him, and local directors, and so on, report to them. It is not commonplace for different managers to get a commission on the sales of their supervisors, regions, or subordinate mlm salespeople in conventional organizations.

This structure is often separated into multiple levels in a multilevel marketing company:

  • Level 1 earns its own commission in addition to commissions from levels 2, 3, and 4.
  • Level 2 earns its own commission in addition to commissions from levels 3 and 4.
  • Level 3 earns its own fee as well as commissions from Level 4.

This structure is similar to that of a traditional sales organization: level 1 is the sales manager, level 2 is the national manager, level 3 is the regional manager, and level 4 is the local manager. Network marketing is sometimes associated with fraudulent pyramid scheme or illegal pyramid scheme due to the fact that this business model structure naturally produces a pyramid structure.

Is Network Marketing A Pyramid Scheme?

What Distinguishes Network Marketing Distribution?

is network marketing a pyramid scheme

As with any legitimate mlm firm, everyone who works in product sales aspires to be a sales manager! While most businesses have just one sales manager, practically anybody may become a sales manager in network marketing. To become a sales manager, you just create your own structure, i.e. your own sales department. This is referred to as the “downline.” To do this, you must not only sell things yourself, but also recruit other participants to become sellers or representatives.

By building your own downline, you not only become the manager of your own sales force, but there is another benefit that distinguishes network marketing as a distinct profession: passive income.

What Exactly Is Passive Income?

When you develop a downline, passive revenue flows naturally. You receive a commission on every sale made in your downline. It’s passive because you don’t have to work for it! Better phrased: revenue arises without you selling yourself, your time or your knowledge.

If you establish a sizable downline, you’ll end up making so much passive money that you won’t need to market yourself anymore, depending on the size of your downline. Because you have to manage your own downline, the activity becomes a form of management role. As a result, each networker’s goal is to develop as large a downline as possible in order to produce a comparable passive money.

However, items are always sold or money is traded for commodities. This is an important differentiating feature because no items are offered in a pyramid scheme.

What Distinguishes A Pyramid Scheme?

Pyramid systems work on the same principles as any other type of multi level marketing company distribution. However, no commodities are transacted in this location. This signifies that the new participants’ contributions fund the whole organization or structure. To be more exact, commissions are paid from the funds contributed by new participants. This implies that new members must recruit new participants regularly to keep the system working.

The firm generates no value or income; it just gathers and distributes money. Unlike network marketing, which seeks to establish as big a client base as possible in order to sell things in the long run, pyramid schemes seek to recruit as many individuals as possible. to get money from someone without receiving anything in return The new money is then used to pay commissions. This is sometimes referred to as a bonus in the industry.

Is Network Marketing A Pyramid Scheme?

Why Is The Comparison Of Network Marketing To A Pyramid Scheme So Ridiculous?

When some enthusiastic writer somewhere names a network marketing organization a pyramid scam, industry geeks, commentators, and, of course, all network marketers shake their heads. When you are presented with this issue again in your circle of contacts or in talks with interested individuals, you have the same reaction.

This reaction is natural, however it should be noted that there are firms who masquerade as network marketing companies while actually selling things. However, they enable so many tiers of sales that at one point, a $50 commission is earned on a $10 product. That, of course, cannot work. These businesses are hybrids: on the one hand, they are network marketing organizations that sell items, but on the other, they are pyramid schemes since they can no longer pay out commissions on money gained once they have achieved a particular depth of sale. Such schemes, like pyramid schemes and scam schemes, are guaranteed to fail.

Prof. Florian Kraus, who conducts an annual direct selling research on behalf of the BDD (Bundesverband Direktvertrieb Deutschland – German Direct Selling Association). demonstrates that, like in every industry, there are bad apples. Comparing network marketing organizations to pyramid schemes, on the other hand, is difficult because network marketing is a totally valid and legal method of distribution. Furthermore, several judicial rulings have previously affirmed this. Pyramid schemes, on the other hand, are illegal in the united states.

The fact that network marketing distributors have a pyramid structure is the primary cause of this ongoing misinterpretation of facts. A pyramid hierarchy is not negative in itself and is prevalent in practically all firms. However, the two systems differ significantly in other areas.

What You Should Know About The Topic

There are two critical elements to consider:

  1. There are no goods available.
  2. There are items available, but the depth of the levels is critical. This signifies that the things are exorbitantly priced in contrast.

The first situation is self-evident, while the second is more complex. A look at the remuneration or commission plan would be beneficial. If there are too many layers, the items may become so pricey that they no longer provide genuine value. A $800 container of skin lotion, for example. These prices are essential since there are too many levels to give. It is not always a pyramid scheme in this scenario, but a red flag should be raised.

Another evidence of seriousness is the company’s training and education. Even if such promises are usually connected with fees, they are a sign of sincerity. After all, firms must purchase service providers or training systems themselves, and it is permissible for them to pass on the expenses. It is especially critical that these trainings educate not only sales methods and the like, but also personal growth, i.e. personality development. This may be a large-scale coaching service, for example.

Conclusion

As a result, the differentiation is straightforward. Only if you know the facts, Of course! Another concern is why the industry is continually under assault. Certainly because many people join the network with the expectation of making money immediately. If success is not achieved, the idea of a pyramid scheme is rapidly proposed. Working in network marketing entails starting your own business. It takes time and is mostly determined by the level of dedication committed.

Consider this: if a car company offered you to test drive their latest models over the weekend as part of a community BBQ, would you go?

Would you go if the vehicle dealer offered to host a BBQ for the occasion, where you could show off the new models to your friends and other guests? Of course, you will make money by getting a commission if the item is sold.

In other words, do you think this is a pyramid scheme?

Network marketing has been around for hundreds of years and is used by many worldwide mlm companies. Unfortunately, bad actors are always present in the industry. As is true in all industries. This is also true of the media, which likes to present one or more facts in a distorted manner in order to make a good story out of it. In doing so, mlm companies frequently engage in network marketing by paying freelance writers to furnish them with stories. It is not unusual for these journalists to then hire other journalists to write an article for them.

This is the pinnacle of network marketing!

If you want to become a network marketer, you should talk to people who are already in the industry and learn from their experiences. When reading online testimonials or attestations, be sure they are from actual persons, such as an email address or a social media presence. Don’t be discouraged from your mlm strategy because someone warns you about the hazards of a pyramid scam! However, conduct careful and meticulous research. Reputable businesses provide first contact and information with no commitment. Take advantage of these exclusive discounts!

Finally, there are few professions where one may amass a substantial salary in a relatively short period of time. This is an appealing choice at a time when most wages are under $2,000 and rentals frequently consume 50% of your income!

You can learn more about Network Marketing here.

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