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What Do MLMs Have in Common with Pyramid Schemes?

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by (120 points)
Could you clarify how MLMs can be equated to pyramid schemes and what makes them legal?

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by (260 points)
MLM, or multilayer network marketing, is troublesome in the same way a pyramid scheme is because it operates in a network fashion towards its members where the members make a profit out of their own sales as well as recruiting others into the business. They, however, delink themselves from this structure by the virtue of legally emphasizing the existence of real products and services to be sold and not just recruitment. This structure allows them to function legally, as pyramid schemes are illegal because they do not incorporate the selling of a product or service to earn income, rather, they depend on recruitment.
by (100 points)
The fact that MLM’s seem so manipulative is the biggest red flag for me. Any company that needs to control how you think in order to thrive is suspect, to say the least.
by (100 points)
As someone who has been involved with my fair share of MLM’s, virtually no one in these companies makes decent money unless they focus on recruiting. They can still be deemed a pyramid scheme even when selling product. There have been numerous lawsuits won against MLM companies who were then forced to restructure for this very reason. It’s important to remember that just because something is illegal doesn’t mean people are not participating in it. Drugs are illegal and yet people get away with buying and selling them every day.
by (100 points)
You can't be in an MLM and "serious" if you don't recruit. When the product sales are so meager that you can't afford that vacation or you can't pay bills from it, that's when your up-line will say,"Well, what's your attitude? How badly do you want this? You need to apply yourself, you'll only get out of this what you pour in and recruiting is key because your downline is key." So there you are. The product, regardless of what it is and what quality it is, is marked up greatly BECAUSE everyone wants a cut from its sale. Most reps keep buying stuff so they don't lose their rank. So you are customer yourself first and foremost. I honestly question the moral clarity of those who defend these practices. It's not rocket science. The pyramid is obvious from the compensation plans. You also called the up-line "your boss" (mentor; it's correct). But earlier you stated (correctly) that one of the catch phrases is "be your own boss". See the contradiction? Which is it? Fact is, you won't be the CEO of your own company. You're a cog in the wheel of someone else's company.
by (100 points)
Yikes. I'm only halfway through reading this. I hope to finish this soon. But dayum...I was recruited into a certain company in 1999 that rhymes with Harry Fay. I could never build my business despite trying a few different times over the years. Because of things you said here, the light bulb came on over my tired head & I realize that yeah, it's time I finally cut the cord. I'm done!
by (100 points)
We spent 6-ish yrs in Ham-Tray. The best thing that came out of it was we actually came to know the Lord at a conference Sunday svc! Praise God!  We had a theologocally sound pastor leading that Sunday Service. Also, hubby learned some people skills that translated to a legit sales career independent of Ham-Tray.
The bad...we left our kids frequently for conferences, spent money on conferences that we didn't have, were too influenced by the motivational organization who was at the top of our sponsorship line, not Ham-tray itself. We were encouraged to buy books and listen to tapes in order to be sucessful. A lot of self-help theology was poured into us. We focused more on the "tools" and recruitment than the product itself, however we were shamed into changing all of our buying habits for more expensive, not necessarily better products. For a time, we valued people only for how they might enhance our business. This was from '92-'98. I asked forgiveness from God many times for how I treated people.  It strained family relationships as well. Thanks for this thorough overview of MLMs, Melissa.
by (100 points)
I looked into a couple of MLMs when I was a much younger man, and there were some things I noticed. First, to be successful, the MLM replaces your family, your friends, your church, and becomes THE #1 focus of your life. Every new acquaintance becomes a possible recruit.
The people in the lower levels of the MLM seldom, if ever, see any real money. It's the people in the 1st, 2nd, or 3rd levels who are getting rich. And those people in the lower levels have to buy large amounts of product themselves, to the point of sometimes losing money.
Thankfully, I never joined one of these things, and when I hear the term MLM I walk away quickly!
by (100 points)
I cannot tell you what a relief this content teaching was for me. Long long ago I dabbled in two of these mlms, Ham-tray and Harry-stay. As a Christian since childhood, I knew something just didn't feel right. I left each with little investment, a bit baffled as to why I didn't want to do anything more than purchase the products, never really being able to put my finger on the problem. Aha! Clarity today. I thank God that I never recruited anyone. Otherwise I would be seeking those people out as having wronged them. You didn't say so, but I felt the need to repent of my time and energy and resources spent, even so so long ago. "When you realize you have sinned..." Thank you, Melissa. I'm so thankful for you.
by (100 points)
Melaleuca says the exact thing.  They deny that they are an MLM and use direct sales company.  Only thing is, compensation structure is the same, conventions are the same, same motivational books etc., Christianese, money money money focus.  I have been in several MLMs and they are not pyramids but there are a lot of issues and there are a lot of positives as well.  It’s not for me, but I have friends who do very well in them and are very happy.
by (100 points)
As a 7 or 8 year old, I entered a pyramid scheme called sticker club. My friend sent me a letter that instructed me that to send the letter to six more friends. I also had to buy a sticker packet and send it to the person who sent my friend the letter. Best case scenario, I would get 36 sticker packs. I got about 15. It was the only and best pyramid scheme I got into.
by (100 points)
“Kind of looks like a pyramid but more about that later”
by (100 points)
I'm glad you've covered this topic. Thank you.

I've always hated how MLMs make any relationships a person has or enters into sources of income, which is not okay. It's distorting what relationships are supposed to be for. Anyone involved with MLMs needs to find legitimate forms of income that aren't unethical and spread awareness about what's wrong with MLMs, so less people are duped into giving the crooked companies their money.
by (100 points)
The math doesn't work. MLMs  are supposedly built on recruiting a successful downline, but if most people were successful, the downline would rapidly exceed the population of the earth.
The reality is that an mlm is highly profitable for the few at the top because people underneath them pay a recruitment  fee and quit, not succeed.
Failure is not a bug. It's in the design.
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