As this is one of the most important issues in the industry, I want to take some time to outline the attack on the pyramid scheme label in network marketing. Take a minute to think over the comparison of saying that a traditional business is a pyramid scheme just like a multilevel marketing business. I have been exposed to several people saying that network marketing isn’t a pyramid scheme, it is just like any other business! I think there is an element of truth to the idea that network marketing is just like a traditional business structure, but is it completely correct?
I think as much as people in network marketing would like to dismiss the “Pyramid Scheme” label, I think there is an element of truth to it as the success on the top depends on the “failure” of the people on the bottom. What I mean by this is that people need to be spending without success in order for the most successful to attain a large income while still having the same financial input into the business (ie, the monthly volume is the same or similar for everyone in the company). This does have the feel of a “Pyramid Scheme” because people on the top are benefiting from the financial input of the people on the bottom.
Conversely, it is easy to see a pyramid shape in a traditional business model from the CEO down to the lowest level employee. In traditional business, the argument would be that the lowest employee still isn’t “losing” money to the “boss”, they are making a salary; however here are some important points to consider:
In my opinion, the critical difference is the un-impeded potential for upward mobility in multilevel marketing. Despite the truth that you can spend money without making money, much of that financial obligation goes towards products that you already want. If you picked the right company, then this becomes a very small financial cost. It is also unreasonable to compare it to a traditional business model where you lump the owner, managers and low-level employees together.
In network marketing, everyone is an independent business owner. You have probably had a conversation with network marketing consultants in your up-line that takes the “Pyramid Scheme” label and immediately compares it to employees in a traditional business. However, the better comparison is to match it up with other business ventures. If you look at a business, they have their employee structure, but their success depends on some kind of customer base where the customers spend money and then get something in return. In network marketing, it is the same model, the success of the people on the top depends on people buying the product. The “something they get in return” is the product and also the chance to advance their business on their own to make money. The people at the “bottom” in both cases are essentially customers, not the lowest level employees that are described in the traditional business model.
A traditional business (think McDonald’s), relies on people spending money with absolutely no chance of making money, if you compare this to the reason why people call network marketing a pyramid scheme, it fits exactly in that model. In this business the cashier and the guy flipping the burgers are making money, but they don’t really accurately compare to the people on the bottom of a network marketing company.
In summary, it seems like network marketing companies are comparable to regular businesses in that they both have to have paying customers that aren’t making money as they use the products. However, failure is definitely a real possibility in network marketing, while the role of a traditional employee offer definite income, that is unless you lose your job.
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