The Difference Between Pyramid Schemes & MLM Companies. Is There Really Any?

There is a lot of truth and misconceptions about MLM companies & pyramid schemes going around. In the past few years MLM’s have been sprouting left and right. Many have failed. So how do you tell if the MLM you’re involved in or thinking about joining is running a legitimate business or a fraudulent business model?

There are many ways actually, but what you need to understand is that every business, offline and online, is based on a pyramid model. However, there is are MAJOR differences between a pyramid model and a pyramid scheme.

Normal pyramid model:

A business which runs under a normal & legal pyramid model functions by providing it’s clients/customers (the people on the lower end of the pyramid) value. This value could come from a product or service that is being offered for a fair price.

Pyramid scheme: 

In this business model, there is NO actual value or product given to those on the lower end of the pyramid. What usually happens in pyramid schemes is that the company which runs it convinces you to join and promises to pay you only to refer other people into it. The main purpose of a pyramid scheme is to get others involved into it in order to refer more people into the scheme.

Within this pyramid, there is NO real value. There is NO real product offered. The only actual product is YOU promoting the business. In essence, this business model is nothing more than an illusion and in some cases a ponzi scheme. Unfortunately most MLM companies utilize this form of business.

Here is a picture describing the difference between the 2. If you’re REALLY interested to learn more about the difference, I strongly recommend checking out “Lou Abbots MLM” video on Youtube as he covers this very in-depth:

legal vs illegal pyramid scheme

What about MLM companies. Which category do they fall into? 

By definition an MLM is a marketing strategy (online & offline) in which people who refer others into it are compensated for their referrals investment as well as any future investment their referrals will bring in. Here is an example:

I am person A.

I refer person B into my MLM company and get 50% of his investment.

Then person B refers person C into the business and I get a percentage of person C’s investment.

This means I can make money not just from direct referrals but indirectly from those people who my initial referrals bring into the company. 

However if you’re trying to find out if an MLM company you’re trying to join runs an illegal pyramid scheme or a legitimate business model, you have to find out 2 things (there are more, but these are the most important):

1. Does the company provide ANY value to the customer? Value means service/product which provides fair compensation for your investment.

2. Does the price of entering the company fit the value you’re given in exchange?

If the answer is yes to both questions, then the company is legitimate. If the answer is no to ANY of the 2 questions, it is a pyramid scheme. 

Examples of pyramid model businesses (legal):

Wal-mart

Local small businesses

Amway (This one is controversial) because in many aspects it does have the makings of a pyramid scheme, but because it offers it’s members value as well as actual products to sell, it was deemed (by courts) as a legal business.

Examples of pyramid scheme businesses (illegal):

Zeek Rewards: A $600 million dollar ponzi scheme which basically lured investors into it, promising riches by sharing it’s daily profits as well as getting people to refer others into it for 50% of their investment. It then turned out there was NO value or product offered. It was just investors paying investors. Full report.

Empower Network: This is an MLM company which gets you to join it for $25, then “persuades” you to invest in it’s other up-sells to the tune of $5,000+. The only “value” you get from this company is the training which teaches you to promote the company itself to others. This training even if legitimate is beyond over priced, which is further evidence of a pyramid scheme.

In reality the only thing you’re really doing with Empower Network is paying to promote the business itself to others. This is one of the worst reviewed companies I have ever investigated. Full report.

Most MLM’s: I can’t speak for all of them, but the ones I have reviewed/seen all make a lot of promises without going into detail on what it is they actually do/offer. Any company which stresses more so how much you can make, instead of actually explaining what it is you’re going to get (value) for buying should be a red flag to anyone.  And by the way, you paying to be able to promote a business does not count as value. 

The rules of thumb. More ways to tell if a MLM is a pyramid scheme:

  • If the MLM you are in or thinking about joining pays you to ONLY refer people into the company, it’s a pyramid scheme.
  • If the MLM emphasizes more so on you making money than actually explaining what it provides you and your customers, it’s most likely a pyramid scheme.
  • No actual product involved. Most MLM’s which are pyramid schemes classify training as a product. In some cases it can be, but if it’s ridiculously overpriced ($100’s, $1,000’s), then it’s a pyramid scheme. 
  • If an MLM you join requires you to join higher level memberships for ridiculous prices in order to be able to promote that aspect of the business to others, it’s a pyramid scheme. Example: Empower Network requires you buy it’s higher level memberships in order to make commissions of that product. If I wanted to promote their “15K Formula” which costs $1,500, I would first have to buy it in order to actually get others to buy it and make a commission of it.
  • MLM’s which run pyramid schemes also have a common practice of luring you in for free or a small price, and then bombarding you with up-sells. Empower Network is a great example of this. If you ever join an MLM for a small price/free, and then are told you need to upgrade for extra to get any actual training, turn the other way and demand your money back.

Have any questions?

If you’re currently interested in an MLM and can’t tell if it’s legitimate or not, feel free to leave a question/comment below and I’d be more than happy to answer it 🙂

What you need to know is that when it comes to making a legitimate second income, don’t go through sources which promise you easy money. In most if not all cases, these routes are through pyramid scheme type companies or just plain old scams that take your money and leave you hanging. 

They prey on those special words that turn you to them and get you to fork over your money. You can check out a list of the most legitimate and worst companies in the “Best places to learn” and “Avoid these places” sections above this page. If there is ANY company which you would like me to review, feel free to report it below. Out of all the companies I have reviewed, this is the only one I recommend (it is not an MLM).

 

honest review

22 Comments

  1. Aman

    Hi Vitaliy,

    What is your thoughts about Questra Holdings Inc?

    One of my friend advising this, but by viewing their profile, seems like the source will not be credible as its kinda of buying the stocks for a low price and sell them for higher amount once the stocks get more value.

    Can you please comment on this.

    Regards,
    Aman

    • Vitaliy

      Hi Aman, I took some look at this company and most of the first page results are people who investigate it, the domain name itself for Questra Holdings is not ranked very high on the first page for it’s actual keyword term.

      There are speculations about a name change (not good news), about it only being a program with no product (more bad news), an 11 tier referral system (MLM likely…) and a bunch of other things which to me did not show a lot of transparency.

      Basically, I am very skeptical of this program, although I do admit not really looking that deep into it. I did look for some key bad things as I mentioned above and unfortunately I do see a lot of them. I would really be very careful with this place and personally, I would not join it, that’s my opinion.

      As I’ve said to other people who ask me about various MLM programs and such, to avoid them and go with an online business plan that is NOT MLM structured, one that you can build in Wealthy Affiliate, for example.

  2. Myrat

    Hi Vitaliy,

    Thank you for your reply. I have read your article on WA and from the screenshots it seems like idea is working. I definitely will try it out and share my experience.

    Just to verify: you have mentioned that UDS game is not something new and there are other similar products or companies which offer same services. Have you come across with those companies? If yes, can you please name them, as I want to do my research as much as possible to find some pros and cons.

    Will appreciate your soonest reply.
    Regards.
    Myrat

    • Vitaliy

      Well I can’t really name the programs right of my memory, but the idea of consolidating services such as the one the program mentioned isn’t new. There’s lots of programs in various niches that aim to help business owners/app makers organize their programs/leads/business functions so I look at this program like that.

      Because I am personally not into this type of market, like I said, I cannot remember the specific names of these companies, but they’re out there. I think you’ll really enjoy WA though, I would look at them first before you venture into the other niche markets like this one.

  3. Chris Towers

    I have never been a huge fan of a pyramid approach to business. I myself got involved with one or two in the past and they were more trouble than they were worth.

    It sounds very easy when people say ‘hey, just get a few people to join under you and you will make good commissions.’

    The thing is, these other people also need the same discipline when it comes to getting others to join, and because it is not easy, they fall by the wayside.

    I guess it is just not for me, I prefer to run a business that I can call my own and be responsible for its success or failure. Relying on others to have the same mindset as me simply has not worked in the past,

    Have you had success in this area?

    Thanks

    Chris

  4. Myrat

    Hi Vitaliy,

    I’m thinking of joining one company called Global Intellect Service which provides an IT product which called UDS Game. It is available on Google play or Apple store for your reference. And also if you search by UDS Game reading in Google, you will find their official website.
    UDS is abbreviation which stands for United Discount System.

    The idea is impressive, however, in the marketing plan, I have seen some related points mentioned in your article.

    Would appreciate if you may help me verify if it’s a legitimate company to join?

    Thank you very much in advance.

    Regards.

    Myrat

    • Vitaliy

      Hi Myrat, so I tried to translate the official Global Intellect Service website. It is apparently only in Russian, however Google translate didn’t work on it so I can’t check that out.

      I was however able to read about the “UDS Game” you mentioned and see a website for it. I honestly can’t say the idea is amazing, because I’ve seen this type of stuff in other programs. From what the website says, it just looks like a program that helps you optimize your customer base for a product or digital service you offer and that is a vague description, but that’s honestly how vague the site itself is. And to be honest, it is not the first type of program I’ve seen that is like this.

      Therefore it is hard for me, based on this small research alone to judge whether one or more of these programs/services/companies is a pyramid scheme or even an MLM program at that.

      However, it’s obvious to me you are very interested in starting an online business or at least venturing into new opportunities. What I would say is you may want to hold off on this program you mentioned, or at least do other research and try to find if there are any complaints or at least negative/critical feedback and judge them against the positive ones.

      But, what I can recommend you may want to look into is the program I am part off which not an MLM, but just one which helps you more accurately find your hobby to build something off it. Take a look at Wealthy Affiliate, I honestly think given what you’ve told me, that may be a better alternative for you to try, at least at first.

  5. Jeny

    Hi there! A well explained article.

    Have you heard of SNE Marketing? What are your thoughts on that?

    • Vitaliy

      I’ve never heard of Qnet until you mentioned it Vikram, but I did a little bit of research and it showed me it’s a big company which has a lot of controversy. I’ll check it out further, gather as much information as I can and probably do a full review in the near future.

  6. Chris

    I would disagree with you that MLM’s are all or mostly alike. Apparently you haven’t sampled enough of them to give such a review. I have seen some pretty good ones that are very legit. The thing that creates variation in them are obviously the products, comp plans, and costs. Yes be aware of the scammers but please do not characterize all MLM’s in the same category.

    • Vitaliy

      I have to mostly disagree Chris. I do admit I have a certain bias against MLM programs but they are not all bad, even by my high standards of what they should be. As long as they charge you a fair price and provide good quality products and their referral program isn’t complicated, I will agree to it being legitimate.

  7. Tracy

    Great Post! Have you heard of MYNT? It stands for My Nutrition. Was approached by a friend about it and just wondered if you’ve run into it and have any opinions? Thanks for any light you can shed. Sounds like an amazing opportunity because it is backed by so many professional celebrities and I’ve heard that millionaires are made by getting in at the beginning of the life cycle. They have a great product and a great business model. Just thought I’d ask…

    • Vitaliy

      Sounds like an MLM to me Tracy. I’d be VERY careful about millionaire claims and celebrity endorsements. I tried to Google MYNT but nothing came up. Either way, like I said before, my advice is to avoid MLM’s. These get rich quick approaches almost always fail.

        • Vitaliy

          Hi Rob, I had to erase some stuff on your comment as I don’t allow people posting links on my site. But I did check out Mynt. Currently this site has not officially launched and there is very little information on it so I can’t make the assumption on whether or not it’s a pyramid scheme.

          However, from what I have seen browsing around, there is no actual explanation on what the product is. It’s just hype on it’s launch which is not usually a good sign. I’ll wait until it launches and do an official review. My recommendation would be to avoid it for now, wait until reviews come out and then make the decision.

          But above all, since it is an MLM, I doubt I’ll have good things to say about it. Instead I prefer my #1 recommendation since it is NOT an MLM. Hope this helps.

  8. Johan Norberg

    Hi Vitaliy. First of all… Great site, nice work:-)

    I really love your outline on these pyramid and mlm scams. This will help a lot of people online, to point them in the right direction away from the scamsters!!! I will come back to your site in a while to learn more, thanks man!!!

  9. Max

    I had no idea what the difference was between Pyramid schemes and MLM schemes. Nor did I stop to think that there is a legitimate pyramid model, as opposed to the pyramid scheme. Thank you so much for writing something that really informs the reader about such things. If we know what we’re up against, we can protect ourselves.

    • Vitaliy

      Truth be told Max, there isn’t much of a difference between MLM’s & pyramid schemes. Very few MLM’s actually provide the user with value and for a fair price. I honestly can’t even name any, but I know they are out there (maybe Amway, though I don’t like it).

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