A pyramid scheme is a business model that makes money based on recruiting members. The reason for the name Pyramid Scheme is because of its pyramid structure. The investors on the first level recruit more members who get placed below them. This process continues with the number of members increasing on each and further level. The Pyramid Scheme has become illegal in a view of the fact that it doesn’t involve any sale of products or services. It only involves recruiting members.
Many misunderstand Pyramid Scheme with Network Marketing or Multi-Level Marketing (MLM) while MLM is involved with sales of products or services besides recruiting members. So Multi-Level Marketing is, in fact, a legal business model. It’s true that some companies are calling themselves as multi-level marketing but they are really operating pyramid schemes which are illegal and a scam. Better avoid those companies if you are planning to join MLM business.
A pyramid scheme is not legal because no scheme can recruit new members forever. Every pyramid will collapse at one point in time because it cannot expand beyond the limit of the population within a community or area. Pyramid schemes are not only illegal, they are also a waste of time and money. The only people who make money in the Pyramid Scheme are those few ones who are on the top level of the pyramid. The members at the bottom levels will not be able to make money and will be unable to recruit more members after some point in time. On the other hand, MLM or network marketing is a legal and safe business model that is involved with recruiting members but more importance is given to the sales of the company’s products/services. To know more about MLM, various MLM business plans, and how it works, get in to Hybrid MLM Blog.
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