What is MLM? | Is this fraud or not?


Someone might have tried to trap you in MLM or pyramid scheme. People who do not know what MLM is, what is Multi Level Marketing and millions of people are fooled not only in the country but all over the world in the name of MLM. Today’s article. Let us understand this whole scam in depth, how this scheme works and how millions of people are fooled. It is known by many names like multi level marketing, referral marketing, network marketing but this pyramid scheme is a little different. What is the actual difference between the two, you will understand in this article but first let us understand MLM in depth.

What is MLM?

An MLM is known by many names. Some of which are Multi- Level Marketing, Referral Marketing, Network Marketing.   But this Pyramid scheme is a little different.   I will explain the difference between the two in the video later but let’s get to know MLM in depth.   Multi Level Marketing is basically a way of marketing which some companies use.  To know the difference…what happens in a normal company?  In a normal company, let’s assume there is a company that makes skincare products.   The company manufactures those products. After that these products go to distributors such as shopping malls or shopkeepers.   The consumers of these products go to the distributors to buy these products.   So, sellers > distributors > consumers will be the flowchart for a normal company.   Now, what happens in fraud MLM companies?  There are sellers and the distributors are the consumers themselves.  The fraud MLM companies fool their consumers by telling them that they are actually not the consumers but rather you are the distributor.   But in reality, they are the consumers.  Did you get it?  A MLM company usually focuses on recruiting more and more people.   A normal company focuses on making good products so that people are able to buy them   But a MLM company focuses on calling people to become distributors for their company and offers them commission in exchange  In fact not only this, MLM Company asks its distributor to find more distributors   and they too will get some commission and all of you work on the basis of commission   And eventually a pyramid sort of structure is formed.   On top of the pyramid sits the boss, below it are some the distributors who get some commission,   below them are more distributors who get some commission and so on.  So, basically, a question will come up in your mind: who is buying that product and what are these people selling that is being consumed?  One question you might ask here is what is the benefit of all of this?  What benefit does a MLM Company have of gathering so many distributors?  This is where the entire game begins. Listen carefully because this is the most important part of a MLM scheme.  All these MLM companies will say that you need to invest some money to become a distributor. You need to give them some money.   Now, all of the MLM companies won’t ask money from you directly.  They will say, ‘you can buy our starter pack or buy some of our products.’   And once you have done this and invested your money then, you can become a distributor and start earning a commission.    And this is the entire game because think about it- the company has converted its distributors into its customers.  Now, this MLM Company doesn’t need to spend on advertisements or make great products.   It just needs to focus on how to trap as many people as possible.   ‘If You come and become a distributor, you will get a commission. Buy our products in return.’ 

What is MLM? | Is this fraud or not

What is pyramid scheme?

Now, let’s understand the Pyramid scheme. Like I said, the Pyramid scheme is a similar thing.  The difference between an MLM and a pyramid scheme is that  Pyramid schemes works in a similar fashion but there are no products here. People are asked to invest money. In return there are no products.  Once you invest the money, you recruit other people.   Whatever money they invest, you will get a certain commission but the majority money will go to the person at the top.   Say you join a pyramid scheme by investing INR 10,000.   You are asked to recruit at least three members to get a commission of 10% on the amount they invest.  And if these members recruit other members then you will get 2% from the next level investment.   So, it is quite easy to show how great a scheme it is.  Find three people and those three people will find another three people and just like this you will become a Crorepati overnight.   Your money will double in 25 days because this is a chain.   You just need to find three people who will then find another three people and what connections will be made   and you will make so much money through commissions.  The problem is friends that when actually get trapped in this pyramid scheme then you feel that you are sitting on top of the pyramid but in reality you are at the bottom  This is called “Up line” and “Down line”  Only 0.1% of people who are at the top earn profits. Rest 99% are in loss after investing their money because they are unable to find other people.

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Is MLM legal?

 In most countries including India, Pyramid schemes are illegal and banned.  But MLM, Multi Level Marketing is actually legal.  What is the difference?  In MLM, you are actually selling a product/service. There is nothing as such in the Pyramid. This is all the difference there is.   For this reason only, most MLM companies show outwardly that we are selling a product but in reality they are operating a pyramid scheme only.   Their products are disguised so they can stay legal.   In reality they ask you to invest money in some way or the other whether it is by buying the starter pack of the product or any other way.   Think of it yourself friends. In real life, when do people spend money? It is when they see some value in spending money.   You buy food with your money because it fills your stomach.   You buy movie tickets with your money because a movie provides entertainment and you see value in form of entertainment.   People will spend only when they see value.  The same is with a company.   A company only employs you when the company sees value in you such that you have these skills, knowledge or you can do such work.   Now, look at it from the perspective of a MLM company.   What value does an unemployed 12th fail individual have for a MLM company?  There are only two values in him. One is that he has a small amount of money that he will invest in the company resulting in profits from the company.  The second value is if he is fooled then he will search for more fools who will invest more money so the company earns more profits.

What is the Solution?

So what is the solution to this entire thing?  The solution is that you should first understand that in life there are no shortcuts of this level.   There are some shortcuts in life but not to this extent.   If you want to become rich and want to earn money then you must have a skill that would seem valuable to people   or you should have such knowledge that people find valuable and you can share with them.  If you do not have any skills or knowledge then you first need to invest in yourself and up-skill yourself.    and let’s go in depth and understand the difference between a MLM company and a normal job.  What happens in a normal job? You are interviewed. There is a screening process.   The company sees your education levels, skills and whether you will be beneficial for the company or not if it hires you.  But MLM Company does not pay heed to such things.   There is no screening process. Whatever your education level be, whether you are employed or not, have any knowledge or not, it does not matter.   Anyone can become a distributor in a MLM company   as long as they have enough money for the membership fees or to buy the starter pack of these products.   

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Normal Job Vs MLM

The second difference is that normal company has a fixed salary or you are paid on the basis of your work   but in a MLM company, the number of people you get recruited or the products you sell determine the money you get.  MLM Company does not pay heed to advertise its product, improve its product because they only focus on gathering more distributors.  A normal company tries to improve its products, advertises for it.   For this reason, products of MLM Company are usually extremely overpriced.  Sometimes, they are two or three times overpriced compared to the products of normal companies.   The third difference is that a normal company earns the majority of its money by selling its products and services  while a MLM company earns the majority of its money by hiring recruiters.   The majority money comes from the the initial investment  provided by the distributors that come and join   Fourth and most dangerous difference, MLM companies usually hold live events where a lot of self –help, motivational talks are given.  You are told to always keep a positive mindset.   If someone says something bad about MLLM, doubts you then get rid of the negative people from your life whether they are your friends, family.   Generally,  people who participate in MLM, the victims of this scam become distant from their friends and family due to these very reasons.   Let’s get back to multi level marketing and now I would like to explain how you can recognise these MLM companies.   It is not always easy to recognise these companies. A lot of times, they secretly entrap you in their schemes.   First thing is that MLM companies usually give you incentive to recruit more people.   Normal companies give you an incentive when you work well or turn up with more sales.   But here, incentives are given to recruit more people and get more participants  Second thing is that MLM companies usually have a hierarchy.   The distributors are given different tags such that one is for gold level, another is for silver level.    To reach these levels, you do not need many skills. You are not appointed.   Rather all of this is given by the number of people you recruit below you.     The third thing is that these companies only give you commission when you pay a certain amount. You can call it the pay-to-play requirement.   An interesting thing here friends is that a MLM company has so many levels which is not functionally required.  If you look at it from the perspective of a company then the company can easily have a referral scheme such that   ‘you buy this product and if you recommend this product to your friend or family member then you will  a certain percentage of commission.’ 

What is MLM? | Is this fraud or not

How to identify MLM schemes?

This is enough if done at a certain level. What is the need to make so many levels?  They say that you refer one person who will then refer another person who will then refer another person…  They knowingly want to make a pyramid structure.   Because the main source of income for the MLM company comes from here.   More and more people get attached. They pay investment fees. They give the initial amount to the company.   Who is the target group for these MLM companies?  Who made the sacrificial goat here?  These companies generally target unemployed people, housewives and anyone who comes under the category of vulnerable people.   Unrealistic promises are made to these people, big dreams are woven that you would be able to do this, you will earn this much.  Pictures of a luxury lifestyle are painted in front of them, dreams of expensive holidays are woven… Words like ‘financial freedom’ are generally used.   They claim that you too will become an entrepreneur by joining their company .   But in reality what is this company? It is “His Hat, Your Head.” 

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How are people fooled?

If you watch the interviews of the people who have been entrapped under such schemes   then you will hear stories -how people reached their limit on their credit cards, took loans to invest in these companies and were unable to pay the debt   people lost their homes, bankruptcies were seen.  There is a higher chance of you winning money in a Casino as compared to a MLM scheme.   Herbalife, Amway, QNET are examples of some popular MLM companies.   Many of these companies are earning billions of dollars through these very MLM schemes.   A question might come in your mind here- Do all these companies who use MLM are a scam? Are all of them frauds?  To answer this question, I would say almost all of them are fraud.   I am saying “almost” because there are some examples of companies who are working almost fine.  They do not scam people every time.   There are some MLM companies who are indeed using the MLM scheme but the products they sell are actually good and people are using it.   And some people just buy those products and everyone doesn’t turn into a distributor.  One such example is Tupperware.   Tupperware plastic boxes are in everyone’s home. They use the MLM scheme only to sell their products.  

Are all MLM scams?

I would not call it fraud here because its products are actually of good quality. Every consumer is not becoming a distributor.  Another critical difference is that the good MLM companies will not compel you to invest a certain percentage of money to get commission.  They will say that you need not invest money every time. If you recruiting people then you can take the commission.   But in reality there are very few companies like this     Another question that arises here is that normal companies which are not frauds, why don’t they use MLM techniques to market their products?  If you think about it from the perspective of a company then you will get to know the answer.   If your company that is making a product/service, that product/service is actually good so what will be the need to hire so many distributors?  If your product is really good then people will buy it just like that.    For this reason friends, I say that the products of most MLM companies are bad and overpriced.    If they try selling those products in the normal market then no one will buy it. These companies will start registering losses.   This is the reason these companies are using MLM techniques to sell their overpriced, low quality products.   The aim of a normal company is to maximize its profits. If a normal company starts using MLM then it will have to split its profits at different levels.  Why would a company like to do it?   They would keep just one level such that whoever is buying the product, if that person refers it to someone else,   he will get a certain percentage commission.  That’s it.  What is the need to keep multiple levels?  There are very rare cases where a good company makes good products, it is beneficial for such a company to make use of the MLM scheme.  I can think of just one example such that  a product is being sold which is being used more by people among friends and family such that they can recommend it.  So by recommending it to one another, they basically spread their products through their network of people.  There are very rare cases where such things happen.   

Hopefully, you understood the entire story of MLM here. Tell all your close relatives and friends about fake MLM companies and be careful not to fall into the trap of these scam companies.  

Hey, I'm Shubham Patil, your go-to blogger and YouTuber! Unveiling the latest in tech, lifestyle, and beyond. Join me for informative blogs and captivating videos. Let's explore together!"

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