Avoiding MLM Scams

In the modern era of internet advertising, there are many opportunities for individuals to make money online, particularly through multi-level marketing schemes. Multi-level marketing schemes are legitimate marketing programs that sell products to consumers through independent marketers, who receive a cut of the profits for their efforts. Some examples of companies with legitimate multi-level marketing programs such as Avon, Tupperware and Amway. However, there are also plenty of pyramid schemes that take advantage of the structure of multi-level marketing schemes in order to scam individuals with promises of future income. This article will discuss how prospective marketers can identify reliable and legitimate multi-level marketing programs and avoid the pyramid schemes.

What is a Pyramid Scheme?

First of all, it is important to define the concept of a pyramid scheme so potential partners for multi-level marketing programs can know what to avoid. Typically, pyramid schemes are illegal institutions based on having members pay a fixed fee in order to join the program. These members then become recruiters for the program in order to increase the income the scheme gets from the fixed member feeds. While products are available in some pyramid schemes, the main objective it advertises to members is often recruitment, with bonuses or other advantages for joining the pyramid scheme.

It is easy to see why pyramid schemes are negative and unsustainable. Since profits are only derived from the joining of new members, no real sustainable profit is created. Furthermore, pyramid schemes rely on the relationships of its existing members in order to grow and proliferate. Members already enrolled in the pyramid scheme are manipulated into getting their friends and family members to join the scheme as well, who must then pay the fee to join the organization. Therefore, when the recruitment dries up, the organization becomes unsustainable and unravels as a scam that cannot generate income for its participants. Even more importantly, pyramid schemes strain the relationships between friends and family members who feel cheated because of the members who convinced them to join. In addition, it is particularly important to know how to identify pyramid schemes due to the ability for perpetrators of pyramid schemes to reach potential victims over the Internet.

How to Identify Pyramid Schemes: Warning Signs

For many beginners, it may be difficult to identify pyramid schemes from the many legitimate multi-level marketing programs available to them, particularly online. However, it is important to know a few basic warning signs that can indicate that a program is a pyramid scheme instead of a real, legitimate multi-level marketing program. First of all, it is important to understand that genuine multi-level marketing programs rely on the actual sale of products in order to generate a profit for its participants. Therefore, in any legitimate multi-level marketing program, the emphasis is always on on marketing and selling the actual product. In contrast, in a pyramid scheme, the emphasis of advertisements and communication to members is always on expanding the program and attracting new members to join. If a self-proclaimed multi-level marketing program is emphasizing recruitment and expansion over sale of its products, it can potentially be a pyramid scheme.

Furthermore, pyramid schemes rely on a few more things to scam and defraud its members. One of them is the substantial up-front cost in order to join the organization or pay for goods. The cost of the goods paid upfront can very well be part of a pyramid scheme trying to scam members of the fixed fee. In addition, the goods or services offered by the scheme are often hard to sell or unattractive to consumers. This is a red flag for pyramid schemes, since it is unlikely for real multi-level marketing schemes to be based off products that are difficult or unprofitable to market.

How to Identify Pyramid Schemes: Prevention

Even if the multi-level marketing program exhibits none of these warning signs, potential members should still be careful and do their due diligence before committing to the scheme or joining. Most individuals should be able to distinguish a get-rich-quick scheme from a legitimate multi-level marketing scheme simply from what is promised of members. If the numbers seem too good to be true, it can often be the attempt of a pyramid scheme to appeal to victims through their greed.

Furthermore, it is always ideal for individuals to seek independent guidance and evaluation of companies before enrolling in the program, even for legitimate multi-level marketing schemes. This can be done in a number of ways. Individuals can look up the companies online to see if there are any past complaints or suspicions of the company being a pyramid scheme. They can also look into the local office of fair trading or other commercial institutions to check the legitimacy of the company. Individuals should also evaluate the program themselves and come to an honest conclusion of the program without emotional or financial motivations. How realistic is the product at that price, and how effectively can it be marketed? If the answer to any of these questions seem dubious, it may be mean that the multi-level marketing program is actually a pyramid scheme.


Legitimate multi-level marketing programs can be very profitable for individuals looking to supplement their income. However, it makes it even more important for potential marketers looking into multi-level marketing programs to know the risks and warning signs, in order to avoid the financial damage and legal repercussions of unwittingly participating in a pyramid scheme.