The Difference Between MLM and An Illegal Pyramid

“Long before i got involved in a MLM (Multi Level Marketing), I often run into the this statements.  “That’s one of those pyramids!” Or the question, “Is this one of those pyramids?”

The “pyramid” objection comes up because people have no knowledge, lack of  knowledge or wrong knowledge about MLM and pyramids. Please notice that I wrote “pyramid” there. In other words, a person could think MLM is a pyramid because they DON’T KNOW WHAT A PYRAMID IS.

I got this story from one of those MLM legends “Tim Sales” Quoted:

~~ “When my son was young I would point out a car and say the word, “car.” He soon picked it up and would point to a car and say, “car.” Then, he pointed to a bus and said, “Car.” I said “No, bus.” He didn’t believe me. Why? Because he had already determined that anything that moved on four wheels was a car!”

To solve this, I found a bus and a car that were parked side by side and pointed out those features that make them different from each other and those features that make them alike. Only then could my son determine if what he was looking at was a car or a bus. ~~

Similarly, point out the differences between a pyramid and MLM (network marketing).

So this article is going to first explain the differences between pyramids and MLM

The word pyramid has simply come to mean a business that seems like a scam.

A fraudulent business scheme. Fraudulent comes from the Latin word fraud, which means deceit.

Deceiving someone means to trick them.

FACT: There is no activity (stock trading, charities, law firms, medical doctors, religion, MLM, government, etc.) that does not have a history of fraudulent activities.

In looking at scams, it is important to locate the actual source that is creating the scam; there is ALWAYS at least ONE person.

One that causes, creates, or initiates; a maker.

If a person kills someone with a knife– don’t blame the knife! The knife isn’t the source and definitely didn’t kill the person. A person with bad intentions is the source and USED a knife to do damage.

If a scammer uses telemarketing to seduce its victims into a scam – don’t blame the telephone. The scammer [a person] is the source and USED a telephone to deploy his scam. If you keep get telephone scammers calling you contact a TCPA lawyer.

If a scammer [a person] uses MLM to deploy his scam – don’t blame MLM.

An industry can’t be a scam as it’s not capable of tricking people. People are the only ones capable of tricking someone.

MLM is not the culprit in pyramids, the culprit is the unethical activities of a person or group.

The reason scams sometimes use MLM is because it’s a powerful way to distribute anything.


Illegal Pyramid Scheme
An illegal business that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered.

Sometimes there may appear to be a product – but it’s only there to “look” like a real business. Few people outside of the pyramid desire the product or they can get the same product elsewhere at a less expensive price.

If you enrolled me into your business and I paid $300 to join BUT THERE WAS NO VALUABLE PRODUCT THAT WAS EXCHANGED – that could be an illegal pyramid.

This does not mean that MLM is an illegal pyramid because people enroll others into a business. The fine line between legal MLM and illegal pyramid scheme (according to the Federal Trade Commission – FTC) is the exchange of a real product.

Yet, if you enrolled me and I bought $300 worth of products to see if I want to do the business – then that is NOT an illegal pyramid as long as the product is a “real” product and not some gimmicky product. Most legitimate MLM companies give a thirty day 100% refund on products if you don’t like them. And if you buy inventory to sell and then change your mind about the business, most legitimate MLM companies will give you back 90% of the purchase price.

So the primary difference between an illegal pyramid and a legitimate MLM company is that a pyramid does not have a “real” product. A legitimate MLM company has a real product that people outside of the business desire. Another difference that the FTC (Federal Trade Commission) looks for in determining if a company is a pyramid is how the business is conducted. If there is a lot of hype (saying someone can make a lot of money with little or no work) or the emphasis is entirely on getting new recruits instead of a balance between getting customers and getting new recruits – then it could be a pyramid.

Putting pyramids into perspective
Sometimes I like to point out that there is a lot of negative emphasis put on illegal pyramids, but if you put it into perspective with other industries it allows the prospect (or distributors) to also see the undue emphasis. How I put pyramids into perspective is by pointing out the losses caused by pyramids versus losses caused by other activities. Look at this image:

As you can tell, pyramids do not cause a lot of financial losses compared to other activities. Don’t misunderstand my comment on pyramids – I dislike them a lot. I want them eliminated. But there’s undue emphasis put on them compared to where people lose the most money.



Hope this helped.









Credits parts of  this article goes to the Tim Sales.


You can leave a response, or trackback from your own site.

2 Responses to “The Difference Between MLM and An Illegal Pyramid”

  1. denise says:

    Both Pyramid and Scam are illegal, to find out if the offer is legitimate or not please visit here

  2. allayne says:

    Based on what i’ve learned. PYRAMID is just a structure of a business / organization. It also applies to the employment world which is the structure of organizational chart that includes the president -> vice -> managers -> down to the ranking file where we can find the bulk of the work. Likewise, with the MLM, but the thing is, even the ranking file or the down the line is cable of earning what the up the line has. Equal opportunity but still the earnings is depends on the people effort / investment.

    We treat whatever business as a SCAM that holds / doesn’t pay and NO product / service / training. That’s it!

    How to spot a potential scam / legal business? Just do some research on the internet. Like, type the name of the company + scam ( ex: scammers scam ) on the search bar of your browser then read and understand what other people say who already investigated such business. 🙂

    Kind Regards,
    Alistair “Allayne” Javillonar

Leave a Reply

You must be logged in to post a comment.