Is MLM a Scam?

1. Do people make money in MLM’s?

A. Chris and Elizabeth Kutschera, through their company Praise Enterprises Ltd., began as Usana distributors in 1995. Under multilevel marketing plans, participants get commissions from those they recruit as distributors and for others who are subsequently brought into the fold. By 2003, the Kutscheras had built their “downline” to where they had 5,000 members under them, were earning $600,000 annually in commissions and bonuses. This generated about $20 million a year in sales for Usana.

B. Dexter Yager of Amway:

Among the big distributors are people like Chapel Hill, N.C's
Bill Britt and Charlotte's Dexter Yager. These two men each
run networks of over 100,000 distributors and are each believed
to net over $10 million a year.


Brig Hart wins orange Lamborghini at MonaVie Orlando Regional

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Orange Lamborghini Murcielago

Thousands of MonaVie distributors gathered at the 2008 Orlando Super Regional just over a week ago. On stage, 5 of the world’s most luxurious vehicles were on display.

The lights shined on these exotic cars all day—a Ferrari F430 Spider, a Maserati GranTurismo, a Bentley GT Convertible, a Rolls Royce Phantom Black, and a Lamborghini Murcielago. Towards the end of the event, founder and CEO Dallin Larsen made two major announcements revealing the cars’ purpose:

First of all, Larsen announced MonaVie’s parnership with duPont REGISTRY, the premier classified marketplace for luxury cars for sale—to create MonaVie’s Exotic Car Awards Program. Then, Larsen announced that Brig and Lita Hart are the first distributors to achieve MonaVie’s newest rank—Crowne Black Diamond!

Along with $1 million in cash, the Harts got to choose one of the 5 cars on stage!

With the crowd urging them on, the Hart family selected the orange (xango coloured? )Lamborghini Murcielago :-)

Congratulations Brig and Lita!

D. Dani Johnson is Founder and President of “Call To Freedom Int’l”, and internationally sought after trainer, speaker and author who got started in business at the age of 19.

After 6 months of failing, going into debt and not making any money, something dramatically changed. After getting the right coaching and training, her business income went to $20,000 per month in just 5 short months. She went from living out of her car with $2.03 to her name, to becoming a #1 international producer within 12 months and went on to earn her first million within 2 short years.


Ken Roland – #1 Tahitian Noni International IPC.
“We started working in the spare room of a financed mobile home. Thanks to TNI, we now earn more in a month than we used to earn in 2 years! Thousands of other people from all walks of life are also achieving success and having their own dreams come true. This is the network marketing company to grow with!” Ken is sponsored by TNI.

Tom Thornton – TNI Million Dollar Club.
“My background is in insurance, franchise and management. In 1996, Mannie and I got started in TNI. Today, thanks to TNI, we now travel the world and finally have financial independence. TNI offers the average person an opportunity to build a network marketing organization part-time from their home.” Tom is sponsored by Ken.

Dayle Maloney – Million Dollar Producer.
He is featured in the book “I Could Have Quit $10,000,000 Ago.” He is a multimillionaire legend in network marketing. In 2002, Dayle selected TNI as the best opportunity he has ever seen. Dayle’s tip for success is: “Work hard. Don’t give it what you’ve got — give it whatever it takes. Don’t ever learn how to quit.” Dayle is sponsored by Tom.

F. Marcella Von Harting of Young Living makes over $4,000,000 a month

2. What is MLM

Multi-level marketing (MLM), also known as Network Marketing, is a business-distribution model that allows a parent company to market its products directly to consumers by means of relationship referrals and direct selling.

Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the parent company and are awarded a commission based upon the volume of product sold through each of their independent businesses (organizations).

Independent distributors develop their organizations by either building an active customer base, who buy direct from the parent company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the parent company at wholesale price.

Distributors earn a commission based on the sales efforts of their organization, which includes their independent sale efforts as well as the leveraged sales efforts of their downline. This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. Commissions are paid to multi-level marketing distributors according to the company’s compensation plan. There can be multiple levels of people receiving royalties from one person’s sales.


It is sometimes difficult to distinguish legal and reputable MLMs from illegal pyramid or Ponzi schemes. MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like “affiliate marketing” or “home-based business franchising”. However, many pyramid schemes try to present themselves as legitimate MLM businesses.

In the most legitimate MLM companies, commissions are earned only on sales of the company’s products or services. No money may be earned from recruiting alone (“sign-up fees”), though money earned from the sales of members recruited is one attraction of MLM arrangements. If participants are paid primarily from money received from new recruits, or if they are required to buy more product than they are likely to sell, then the company may be a pyramid or Ponzi scheme, which is illegal in most countries.

New salespeople may be asked to pay for their own training and marketing materials, or to buy a significant amount of inventory. A commonly adopted test of legality is that MLMs follow the so-called 70% rule which prevents members “inventory loading” in order to qualify for additional bonuses. The 70% rule requires participants to sell 70% of previously purchased inventory before placing new orders with the company. There are however variations in interpretations of this rule. Some attorneys insist that 70% of purchased inventory should be sold to people who are not participants in the business, while many MLM companies allow for self-consumption to be a significant part of the sales of a participant [1].

3. What is a Pyramid Scheme?

Pyramid scheme

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The unsustainable geometric progression of a classic pyramid scheme

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered.

Concept and basic models

Pyramid schemes exploit greed and gullibility. A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula. The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the ”business” expands.

Such ”businesses” seldom involve sales of real products or services to which a money value might be easily attached. However, sometimes the ”payment” itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. Clearly, the flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the “pharaoh”) and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Of course, the worst off are at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves.

Some network or multi-level marketing businesses, which sell real products and rely on the price differentials between the manufacturer’s dispatch ramp and the retail counter, may verge on the borderline between ”smart” and ”scam”. When a pyramid does involve a real product, such as Holiday Magic cosmetics in the United States in the 1970s, new “dealers” who’ve paid enrolling fees are encouraged, in addition to selling their products, to become “managers” and recruit more new “dealers” who will also pay enrolling fees. As the number of layers of the pyramid increases, new recruits find it harder and harder to sell the product because there are so many competing salesmen. Those near or at the top of the pyramid make a lot of money on their percentage of the enrolling fees and on commissions for the supplied products, but those at the bottom are left with inventories of products they can’t sell. However, most multi-level marketing businesses are not pyramid schemes.

Pyramid schemes are not to be confused with Ponzi schemes, named after Charles Ponzi, which also rely on greed and gullibility but are quite different. In a Ponzi scheme, all new money is paid to “Mr. Ponzi” for investment in his incredibly profitable business and he distributes a portion of it to other members as “interest” or “investment income” whereas in a pyramid, money is paid to the next level upward in the pyramid.

“American Capitalism is a Pyramid scheme in the best possible way.” – David Simon


If MLM was a scam do you think the richest man in the world (Warren Buffet) would buy an MLM Company? He did and he does. It’s called pampered chef.

So, let’s get busy and make some money and have both Wealth and Riches Online and off!

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2 Responses to Is MLM a Scam?

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