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Multi-Level Marketing Pyramid Schemes

Let’s say you’re looking to make some extra money. Maybe even enough to stay at home with your children, or leave the job you thought would be so exciting when you graduated college, but as the years move on, you’ve discovered – as your grandparent and parents before you – that work is often awful.

And then!! Oh, then!!! You come across a friend on Instagram who is talking about how much money she’s making part time being a “fitness coach.” Or she sells makeup. Or handbags. Or health/nutrition products. She’s making So. Much. Money. So much, she’s either already left, is thinking of leaving, or sure as heck PLANS to leave her job to do THIS!!! full time.

And what is THIS!!!? These types of money-making opportunities are what are known as referral marketing and/or multi-level marketing (MLM). We’re warning you, however, that these types of businesses often have a bad reputation – and one that’s often deserved. Even the U.S. Federal Trade Commission warns a wanna-be entrepreneur to stay away from them, stating bluntly that multilevel marketing plans are “actually illegal pyramid schemes.

What is Multilevel Marketing?

In case you’re not familiar with what an MLM is, allow us to explain. An MLM is a marketing strategy where revenue is derived from a non-salaried workforce. The non-salaried workforce sells the product/service and their earnings are derived from a binary compensation system.

Think of a binary compensation system like a tree. One non-salaried worker is a branch from the trunk, and receives commissions from the sales of all of the branches that emerge from theirs. Those closest to the base of the tree make the most commission, and the branches further out make the least. This is to encourage workers to recruit more employees underneath them, thus allowing them to garner a larger pay.

Examples of Pyramid Schemes

These types of multilevel marketing business models have been around for decades:

  • Amway flourished in the 1960s, followed by HerbaLife in the 1970s.
  • NuSkin in the 1980s.
  • Equinox International made it big in the 1990s before FTC investigated it mid-decade and the company liquidated soon after.

These are just a mere handful of the referral marketing companies that made it big. Some still operate (Amway and HerbaLife, for example). But, our point?

Multi-level marketing companies have been enticing people looking to make money “easily” and/or enjoy the freedom of entrepreneurship for decades – and more than likely will continue doing so for decades.

Who actually Benefits?

Not that big money can’t be made in a multi-level marketing business model. However, the people who make that money tend to be:

  • The MLM’s founders.
  • Those who get into the business early, allowing them to build an extensive string of down-line distributors, which is almost the only way to make money – big money – without working 72-hour days. This is because an MLM marketer with a downline gets a small percentage of each person’s sales in his/her downline, and that small percentage can add up. A lot!
  • What’s more, even if you do get in early, unless you have the ability to get lots of people to sign up under you, and unless they also get a lot of people sign up under them, and those people get a lot of people to sign up under them, and on and on and on, you won’t make…bupkis.

In fact, a 2018 AARP survey found that only 25 percent of those who joined an MLM made a profit. Of those who did, 53 percent made a profit of less than $5K.

Bottom line? Protect your finances and steer clear of these pyramid schemes. Your pocket book will be happy, as will your friends and family members. (Who you may otherwise completely alienate with your incessant pleas to attend or host a party or join their downline. Don’t think it doesn’t happen….)

Alternative Types of Referral Marketing

Can referral marketing work? Of course! Especially when it’s the right type of referral marketing, a.k.a. not part of any pyramid schemes. The right type is the type that’s used to sell products/services either to consumers or businesses. It’s the type in which one friend or family member refers a business to another friend/family member because that business has earned the referrer’s trust over time and throughout multiple interactions.

This type of marketing is extremely powerful. If you’d like to learn how your business can use this superpower, contact Jeff Hays, the Ingenex director of client services, and set up a time for a one-on-one chat.

You’re also welcome – of course! – to contact Ingenex Digital Marketing at any time.

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