# How to Spot a Pyramid Scheme from an MLM

- Link: https://www.lumlawgroup.com/how-to-spot-a-pyramid-scheme-from-an-mlm/
- Published: 2018-06-22T09:57:29-07:00
- Author: Albert J Lum

Numerous opportunities are available for entrepreneurial individuals who are interested
in making some extra money. Unfortunately, it can be all too easy to fall into too-
good-to-be-true traps that could actually end up costing you money, or even your
freedom (if they’re illegal).  Understanding the differences between a pyramid scheme
and multi-level-marketing (MLM) can help you make informed decisions while avoiding
the dangers of illegal money-making schemes.

## Pyramid Schemes vs. Multi-level Marketing

One of the first things to understand about the differences between pyramid schemes
and multi-level marketing is that pyramid schemes typically require individuals 
to purchase massive amounts of inventory to become involved in the business opportunity.
Individuals entering this type of business may also be encouraged to purchase other
items or services they do not need or want to stay involved with the company. Additionally,
your income is usually not based on your sales of products but rather the number
of people you recruit.

Take the time to conduct some research before you consider joining any new business
venture. Due to the illegal nature of pyramid schemes, these types of businesses
usually close down after they’ve turned a profit. Therefore, the companies aren’t
usually in business for very long. By researching when the company was founded, 
and the history of the company, you can better decide whether the company is offering
a genuine opportunity or not.

## Compensation

It’s also important to investigate the structure of the company. Multi-level marketing
companies can sometimes appear similar in structure to pyramid schemes; however,
the key difference between the two is often in the compensation. While pyramid schemes
are often based on contributions of incoming members, MLMs earn profits from their
sales. It’s not uncommon for a pyramid scheme to only give a broad overview of the
amount of money you would make at the lowest level. Instead, they tend to focus 
on what you can make at the higher levels. If you are suspicious, do not hesitate
to ask for more concrete details regarding the average earnings of entry-level members.

## Refunds

You should also get details regarding the company’s refund policy. Pyramid schemes
usually do not have verifiable refund policies. In fact, you will usually find a
no returns policy in the fine print of the contract.

Whether you are in the market to make some extra money on the side or you are looking
for a legitimate work-at-home business, it’s important to ask important questions
to ensure you do not become involved in a scam. If you think you may be the target
of a pyramid scheme or some other type of illegal business practices, [contact our attorneys today](https://lumlawgroup.com/Staging/contact-us/).

 

Sources

[Investopedia](https://www.investopedia.com/articles/04/042104.asp)

[ASEA Scam](http://ourglobalhomebusiness.com/asea-scam/)

[Better Business Bureau](https://www.bbb.org/phoenix/news-events/consumer-tips/2015/03/opportunity-or-scam-multi-level-marketing-vs.-pyramid-schemes/)