Is Network Marketing a Legitimate Income Option or a Pyramid Scheme?

Is Network Marketing a Legitimate Income Option or a Pyramid Scheme?

Four Huge Keys to Rampant Referrals Reading Is Network Marketing a Legitimate Income Option or a Pyramid Scheme? 8 minutes Next Going the Extra Mile with Proof

Notice the headline featuring “legitimate income option” and “pyramid scheme.” If this article popped up for you, I assure you it is because of the phrase pyramid scheme. It is clickbait: red raw meat for those who love to dive into the negative drama of life, kind of like rubbernecking a car wreck. 

Nobody googles “legitimate income option,” although doing so might contribute to one’s life more than a car wreck. But if the pyramid scheme is what drew you in, keep reading. I promise to share some gore.

Network marketing, also called multi-level marketing (MLM), is a business model within the direct selling profession. Direct selling is simply when one person recommends, promotes, and sells a product to another. As you may expect, direct selling has been around for thousands of years.

Network marketing was invented in 1946 when a direct-selling company called California Vitamins changed some long-standing rules regarding business expansion. These changes were radical, perhaps even reckless, and supercharged exponential growth of an age-old profession.


The rule they created, which defines network marketing, is that anyone (a customer) can recommend, promote and enroll another customer – anyone, any customer – from day one. 


What this means is if I become a customer today, I can (perhaps for a small fee) gain the right to educate and enroll others to use the same product … the moment I enroll. And so can they. The “and so can they” part ushered in the exponential growth of the sales force and customer base.

This rule was radical for sure and ended up creating a recklessness I will detail below. It also fueled unprecedented growth, which created unheard-of incomes for those who promoted a product they loved to people who believed them.

You may have seen this kind of example of how a team can grow. You enroll 4, who each enroll 4, who each enroll 4, who each enroll 4, etc. It looks like this: You–4–16–64–256–1024–4096–etc. The scary thing is this math has no end to it. It does not stop.


One of the most prevalent objections to the math sounds like this: “If that worked, pretty soon the whole planet would be a customer.”


Mathematically, that is true. Practically, it is not. There are currently about 3,000 network marketing companies in the world, 118 million distributors, and 200–300 million customers. That is after almost 80 years of enrolling.

Why isn’t the whole world involved? Because most people do not want to buy products from their friends. Most people do not want to sell products to their friends. Network marketing is not an income option with mass appeal. And because of the reckless nature of some companies, the model has about as good a reputation as flashy used-car salespeople.

I often tell my network marketing clients that they have chosen the only thing in the world to sell that everyone has already decided they are never, ever going to buy. Imagine deciding to sell a specific car when everyone in the world has decided they are never, ever going to buy that car. It is a tough road to riches.

If a network marketer asks 10 friends to “just take a look” at their product, 5–9 will say no. In fact, most people will not even respond to the ask. Network marketers must have thick skin and a massive motivation that is not based on their friends’ responses.

Yet most don’t. Most quit the role of promoting the product within weeks or months of starting. Most people never enroll anyone.

You may be surprised to know the same is true for nearly every independent commission-only role, including real estate, insurance, auto sales, and any sole proprietor business. Building a business from scratch without a salary, job security, or even anyone telling you exactly what to do and when to do it is not for the faint of heart. 


So why do people, in the face of all the negative stigma, still find themselves enrolling and promoting the product to others? Is it really a powerful cult culture (another clickbait term) that influences them?


There have definitely been MLM companies that have incredibly charismatic leaders who have unduly influenced people to keep trying, keep losing money, and keep alienating friends and family until their lives are a wreck. The reality, though, is these companies flame out in months or years, either self-destructing or being forced out by regulatory agencies.

The majority of network marketing companies are legitimate, cautious, respectful, honorable and completely legal enterprises. They may fall prey to the stigma, but behind the curtain are products consumers have been buying every month for decades, and in some cases, for almost a century. 

That’s right. There are billion-dollar companies that have millions of customers who buy their products every month and in some cases, for over 60 years. I know many customers who are third-generation customers, meaning their grandparents were customers, their parents were customers, and now, as adults, they are customers too. 

Why the longevity? Simple. For people to keep buying a product every month for years and decades, the product has to be worth the money. Otherwise, customers would just buy something else, somewhere else. And for someone, who probably swore at one time they would never sell a product like this, to change their mind, the product has to really, really work.

Network marketing companies know this, and they invest millions in research and development, pioneering products that often have yet to hit the shelves or the internet.


Product experience is what drives long-term growth in network marketing. 


Now, are some companies just promoting an empty income opportunity with “no beef” in the products? Yes. It happens. And their distributors are reckless, desperate narcissists looking to make as much money, as fast as they can, at the expense of anyone. They are easy to spot.

So are the legitimate companies. All you have to do is look at their marketing. Look at the stories they tell. Look at how long they have been in business. BBB them.

Keep in mind, however, that no company is perfect, especially when the sales force is made up of tens of thousands of people who did not have to interview to get hired, didn’t have to pass a drug test, and didn’t have to have their social media scrutinized by the HR department. All network marketing companies are comprised of a cross-section of society.

Look at the products. Look at the customers. Look at how long the customers have been customers. That will tell you the legitimacy of the opportunity. 


Well, then, what is a pyramid scheme?


It is simply a scheme where the product is either nonexistent or inconsequential to the movement of money … lots of money.

However, there are no federal laws defining a pyramid scheme. Why? Because they are very hard to define. Who is to say the product is inconsequential or not? Sometimes it is obvious. Oftentimes it is not.

Here's the bottom line: If someone you trust told you a believable story about a product, and that product could solve a problem you had, would you consider buying it?

If you did try it, and it really worked, like surprised you in how well it worked, and it solved your problem, would you ever tell anyone your story?

If the person you told your story to ordered some product and had the same experience, and the company sent you a check, what would you do with it? Would you toss it? Send it back? Or deposit it?

If you deposit it, you are now a network marketer. Because if the product worked for you, and worked for others you know, then it will work for people they know, and so on and so on (exponential growth).


Here is a cute video that explains it.


Is network marketing for you? Not until you find a product that blows your mind. Is every friend who calls you to look at their product trying to hustle you? No. Some have found a product they love and an income option that suits them just fine.

Don’t believe all the clickbait and hype about pyramid schemes. Those authors are just trying to get you to rubberneck their wrecks. 


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