Pyramid Scheme or Legal MLM: How to Tell the Difference

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Illegal Pyramids vs Legal Distribution

What defines if an MLM system is legal or if it is a pyramid scheme? The best definition would be from a lawyer who has experience with MLM systems. That being said, there are a lot of opinions on the Internet that can be misleading. The popular opinion is that a system is legal if there are products. For instance, customers that get products without having to be part of the compensation plan, is often considered by people to be a legal system.

Value in Purchase

Actually, according to MLM – The Whole Truth, this isn’t the case. Instead, Lou Abbott (of MLM – The Whole Truth) says that a legal MLM system is one that provides value to customers who get that value without participating in the compensation plan. Here is one of Lou’s videos explaining a legal MLM versus a pyramid scheme:

Lou discusses the gray area between a product, its cost, and the value of said product. He talks about a pencil being worth a nickel. In a legal MLM, the pencil would be sold for relatively close to that same price. In an illegal pyramid scheme the pencil would be sold for far more than its value. (His example was $10.) The lack of value ($9.95) is the difference that makes a system, most likely, illegal.

Defining that value is the gray area. For example, a Chevy can be purchased for $20,000, but a Mercedes costs much more.

Both vehicles do the same thing and are completely legal to purchase at the manufacturer’s prices, but who decides how much they are worth? Generally, the customer does. In MLM systems, there needs to be a more definitive and obvious value to the customer or member regardless of their participation in the compensation plan.

When that value is lacking, that is when the legality comes into question.

Ability to Make Money

Another aspect that decides the legality of the system is their ability to make money. Regardless of when someone enters the compensation plan, their ability to make considerable amounts of money should not be affected. This means it shouldn’t matter if they are the 1st person to enter, or the 1,778th person. In either case, they can build their network to make large sums of money.

The size of their network should be the leading indicator of how much money they can make. An interesting aspect to all of this is market saturation. One would think that at a certain point there wouldn’t be anyone else to join an MLM company and thus compensation levels would be affected. Actually, Mr. Abbott says he has never seen this happen in all of his years investigating MLM plans. Effectively, there should always be more people who would be interested in joining.

Friends and Family

One last indicator Mr. Abbott describes is about your own opinion. At the end of the day, if you don’t feel right about the ‘opportunity’ it isn’t something you should join. He also suggests sharing the opportunity with family and friends to get their opinions, though this can be misleading because so many people already consider anything related to MLM to be a scam. In the end, it’s best for a person who wants to join a program to do their own research.

Empower Network – MLM Company

One MLM company that has a lot of people interested in legalities of MLM plans is Empower Network. They have an interesting MLM system set up around educating customers and members about internet marketing. Their retail products give customers their own blogging platform, and access to training to advance their current business ventures.

The question is, does it provide enough value, or not? Is it legal? The answer is in the value, and that is a gray area a person has to answer for themselves. Should you join Empower Network? Some are making a LOT of money.

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