Most professionals will balk at the expression “pyramid scheme.” It conjures up images of ambition, theft, and unfulfilled promises – not something any business wants to be associated with. While most businesses would agree that pyramid schemes are a get-rich-quick scam where only a few benefit, it turns out that legitimate multi-level marketing (MLM) businesses can create great brands with products that turn a profit for businesses and better the lives of customers.
The difference between pyramid schemes and multi-level marketing business models.
The Pyramid Scheme Explained
The tell-tale sign of a pyramid scheme is that you never see the product supposedly associated with it. People will invest hundreds or even thousands of dollars to buy into a product line with the promise of receiving product to sell or of earning that money back by recruiting more members. Often people participate because they are told that the more people they are able to add to the organization, the more they themselves will be able to earn or profit.
This differs from an MLM organization because, in pyramid schemes, money is only ever earned from registration or sign up fees, as opposed to sales.
Examples of Popular MLM Businesses
Legitimate MLM is a bit like owning a franchise. Multi-level marketing businesses usually have a corporate office that issues product and marketing materials for individuals to become retailers, independent consultants, or business owners. Most of these retailers will purchase inventory from the corporate office and then sell it through social media or their own website, associated with the corporate brand.
The connection between MLM and pyramid schemes is in the recruitment. If one consultant recruits another to join as a seller in the MLM structure, that recruiting consultant can often earn a bonus or percentage of that retailers’ sales. It becomes a way to additionally incentivize motivation and networking to grow the brand.
- Lularoe: Specializes in comfortable clothing for every day in vibrant and unique patterns.
- Herbalife: A weight loss and nutrition supplement company with consultants around the globe.
- doTerra: Sells high-quality essential oils to promote health and well-being.
- Shaklee: Sells vitamins, nutrition supplements, and natural-based home cleaning products.
- Rodan + Fields: A skincare company with products developed by the well-known doctors behind Proactiv skin care solutions.
What Businesses Can Learn from Successful Multi-Level Marketing Companies
- A great product matters: Multi-level marketing businesses have a distinct product. Lularoe markets its “buttery soft” fabrics, while Mary Kay is known for quality makeup that buyers can try in their own homes. A quality product is an essential foundation for any good MLM business and creates the kind of following that can sustain the business.
- Fans make the best salespeople: The people who work for BeachBody, Rodan + Fields, and other MLM companies are often former customers who fell in love with the product and wanted to work alongside the brand to help introduce it to more people. This highlights the importance of a great product – not only will it delight customers and keep them coming back, it will create the kind of brand ambassadors who will help spread the word about the product.
- Incentives help success: Incentivized employees will often work harder than those who aren’t. Monetary bonuses, payment tiers, or additional performance incentives, like gift cards or trips, can increase effort and performance at all levels of business.
While businesses want to avoid being likened to pyramid schemes – with too good to be true promises and no payout to hardworking people – they can certainly take a page out of the book of multi-level marketing strategies. Even if your product audience is B2B or sold in traditional outlets, there’s plenty of benefit to innovating unique products that create fans, not just customers.
