The Federal Trade Commission (FTC) identifies pyramid schemes as a scheme that guarantees large profits for the recruitment of others but lacks any income based upon the sale of goods.
Ponzi schemes are slightly different from pyramids. Where pyramids may be disguised through product sales, Ponzi schemes generally have no product to sell. Additionally, Ponzi schemes do not pay for the recruitment of others.
It is often difficult to distinguish the difference between legitimate Multi-Level-Marketing and Pyramid or Ponzi scheme's. Legitimate MLM's will have product for sale through retail distribution methods. Additionally, consumer membership or sales will be free of sign-up or membership fees. All profits will be based upon retail commissions, not recruitment.
Legitimate Multi-Level-Marketing opportunities have been recognized to exist in all 50 states of the USA and in over 100 countries worldwide. These legitimate Multi-Level-Marketing opportunities have been a great source of extra income for millions of people worldwide.
The unfortunate fact is that for every legitimate Multi-Level-Marketing there are multiple illegal schemes that are developed. Therefore there are several guidelines one should recognize before considering any legitimate Multi-Level-Marketing opportunity.
Product Sales - Any legitimate Multi-Level-Marketing will have legitimate products for sale to the general public. Pyramids may be disguised by inventory loading and lack of retail sales. Legitimate Multi-Level-Marketing may have product sales between distributors; however, the emphasis should be on retail sales to the public.
Personal Consumption - While the focus of a legitimate Multi-Level-Marketing plan is upon establishing retail sales, there is a certain level of personal consumption that is allowed. As with any business, business owners are encouraged to purchase their own products and services. It is important to recognize that personal consumption, or the personal consumption of down-line distributors, should not be the only method for making sales. The personal use of products and services because a distributor wants to use them is considered a legitimate retail sale.
Inventory Investment - Legitimate Multi-Level-Marketing will not require a large investment for inventory to become a distributor. There may be a minimal investment, or a sign-up fee, that includes a set of sampler products.
Inventory is guaranteed - In a legitimate Multi-Level-Marketing business any inventory purchased should have a buy-back or customer satisfaction policy. This policy should include an offer of at least 80% of the initial purchase price.
Recruiting Commissions - A legitimate Multi-Level-Marketing business will not focus on solely upon recruiting others, or offer to pay for the recruitment of others. Any fee that is not for the purchase of inventory should only benefit the company and provide no benefit to the host distributor.
It is important to remember that any business opportunity a person considers should be thoroughly investigated. A person considering starting a business and wants a low cost investment, should investigate legitimate Multi-Level-Marketing.
Bio– Terry is a free lancer writer of www.smallbusinessmoney.org and he enjoys writing about business for home topics.