What is the difference between MLM and illegal pyramid schemes?

Hands up if you know or have known of at least one Avon lady? When you see that brochure, you know exactly what to expect should you choose to buy – and if she tries to recruit you to sell Avon, you still have a sense of security, too.

Did you know that Avon and other businesses like it (Virgin at Home, Mary Kay Cosmetics, Kleeneze…) are all MLM businesses?

What is an MLM?
MLM (Multi Level Marketing) describes a business marketing strategy where the sales force gets paid for not only for sales they personally generate, but also for the sales of other people they recruit. This creates a hierarchy of multiple levels of compensation, where the higher up you are in levels, the more commission and royalties you earn.

MLM is also know as network marketing, pyramid selling (not to be confused with illegal pyramid schemes) and referral marketing.

This should not be confused with illegal pyramid schemes, which you can spot by watching out for the following signs:

1. Illegal pyramid schemes encourage participants to make substantial investment by buying stocks of goods and rewarding participants for getting other people to do the same.

2. Illegal pyramid schemes make little reference to direct selling and the need to achieve consumer sales. Instead, they imply that the main source of rewards comes from getting others to make substantial initial investments.

3. Companies of illegal pyramid schemes do not offer contracts to participants, cancellation rights or the opportunity to sell back any unsold goods to the company – all of which are required under UK law.