What is Pyramid Scheme? MLM, Ponzi and Pyramid Scheme Definition

What is Pyramid Scheme? MLM, Ponzi and Pyramid Scheme Definition. Difference between Ponzi Scheme and Pyramid Scheme, Difference between MLM and Pyramid Scheme, Are Pyramid Schemes legal or not?

A Pyramid scheme is an illegal business model which looks like MLM (Multi Level Marketing) business model, but is more focused to recruit the people than selling the products. Most of the Pyramid Schemes sell affiliate membership instead of selling the real products. A Pyramid Scheme always lure the people by offering unexpected ROI on their investment amount but, the fact is that it operates by paying old members by using the money invested by the new members, completely illegal and even can't sustain for long run because the ability to recruit the new members will be dry up sooner or later and the market for that company to get new members will be saturated and the whole system start to backfire and ultimately collapse. Many confused MLM with Pyramid Scheme and also Pyramid Scheme with Ponzi Scheme, however here, we are going to provide you the exact difference between Ponzi Scheme and Pyramid Scheme and also the difference between MLM and Pyramid Scheme.

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What is the difference between Pyramid Scheme and MLM?

Although most of the Pyramid Schemes look like MLM, but you must know the fact that the legit MLM businesses are more focused to sell their products than recruiting the new members and MLMs pay their affiliates from the profit that they make by selling their real products, not by using the investment of new members. However, the Pyramid Schemes, either offer products to sell or not, but they are more focused to recruit the members and sell their products or membership to those members than to the consumers. But, the MLM is more focused to sell their products to the real consumers. So, to differentiate MLM with Pyramid Scheme, simply you have to look the compensation plan of the company and need to find out either they are focusing for selling their products to the real consumers or to the members itself. Yep, we agree that there are some MLM companies which have blurred the line between MLM and Pyramid and make more difficult to differentiate. But also, if you can earn more money in the company by recruiting members and selling their products or membership to the members than the real consumers, then that involves Pyramid Scheme which can have a legal issue anytime in the future.


What is the difference between Ponzi and Pyramid Scheme?

Actually both Ponzi Schemes and Pyramid Schemes are illegal business models where the existing members are paid by the investment made by the new members, but also Ponzi Scheme is more danger than the Pyramid Scheme because most of the time participants in Ponzi Scheme are unaware that they are involved with Ponzi Scheme, instead they believed that they have invested on actual security and will just earn back certain percentage of ROI when company makes the profit. However, at least the participant who involves in Pyramid Scheme, most of time they are aware of the fact that they can earn only by recruiting new members into the system, some of them even aware that the investment from the new members is a source of profit for existing members. Since the members in Ponzi scheme think that they can get return of their investment after certain period of time with certain percentage of ROI even without recruiting and they believe those profit is generated by the company itself without using money of new members, so most of the members in Ponzi Scheme just invest money from their own pocket, but doesn't involve actively to recruit new members. But, since the compensation plan of Pyramid Scheme itself shows that the only way to earn money from that scheme is by recruiting the new members and using their investment, so the members of Pyramid Scheme highly involve in recruiting the new members. Although, both Ponzi and Pyramid Schemes involved to compensate the existing participants from the investment made by new participants, but also participants of Ponzi scheme believe that they are earning returns from their own investment, not by investment of new members, while participants of Pyramid Scheme are aware of the fact that they can earn money only by recruiting new participants.


As per the record and business nature, we can say that Ponzi Scheme can sustain for many years, however Pyramid Scheme collapses quickly because Pyramid Scheme need rapid growth to sustain, but Ponzi Scheme doesn't need that. Even it is always hard for concerned authorities to spot the Ponzi Scheme. For example, Ponzi Scheme operated by Bernie Madoff was able to run for over 30 years by offering steady returns to investors. But, in 2008, due to the economic downturn, Madoff didn't able to pay his investors as most of them tried to cash out of the market and his scheme collapsed and revealed as a Ponzi Scheme and then he was arrested in 2009 for running Ponzi Scheme and now he is in jail for 150 years, or we can say for lifetime prison sentence. So, this incident also makes it clear that it is very hard to spot the Ponzi Scheme even by the concerned authorities. As you know that we are here to provide the guidance to make money online and spot the scams, but also sometimes even it is very hard for us to spot the Ponzi Scheme.


Yep, there are some companies which real makes profit and pay back certain amount of ROI, but the maximum numbers of companies who offer ROI in certain period of time are Ponzi Schemes. In order to spot either they are Ponzi or not, we need to see their business plan and need to find out their real source of income is enough to pay back the committed ROI to their members or not. However, there are some companies which never declare the return period of those ROI and only commit if they make profit, they will share the revenue, if not, they will not. So, those kinds of sites are known as Revenue Sharing sites. But, it is still unknown that Revenue Sharing businesses are legal or not because till date concerned authorities haven't given any clear statement either Revenue Sharing businesses are Ponzi or not. Some of the Revenue Sharing sites are facing legal issues and having court cases, but still those court cases are not finalized yet due to which it is hard to say either Revenue Sharing businesses are legal or not. Only after we get the final verdict from the court for those Revenue Sharing businesses which are facing the legal debate in the court, then only we can categorized Revenue Sharing businesses are legal or not. At the moment, we can't say exact about it. Once we get the final verdict on Revenue Sharing businesses, we will update it here.



Aforementioned, the main focus of a Pyramid Scheme is to recruit the new people so that they can pay the money to the existing members by the investment of the new members. Most of times, in Pyramid Schemes, they do pay the highest ROI to the beginner investors and shows the dream to the new investors to earn the same amount of ROI, but the new recruiters won’t even get a close to that ROI amount because the structure of Pyramid Scheme only serves to the members at top of the Pyramid Scheme which obviously will be those who join the system first. In this way in Pyramid Scheme, more new members join and invest, those new members will earn relatively low amount than those old members and at last some new members start to lose money and then leave the system which will backfire all the system from down to up and the system start to dry up and ultimately whole business will collapse.


There are lots of companies out there which are pretending to be MLM business and fooling around the people by using a Pyramid Scheme business model due to which most of the people are being victims of such kind of Pyramid Scheme, illegal business model. However, as we have mentioned here some facts about Pyramid Scheme with some difference between MLM and Pyramid Scheme as well as also the difference between Ponzi and Pyramid Scheme, hope this helps you to figure out the legal business from the illegal ones. However, even you find out the legit MLM, still our recommendation will be always to work with affiliate program than with MLM because affiliate program is much more less risky and easy to work, such as eBay, Amazon etc. If you don't know how to become successful by working with affiliate programs, then you can join the training program which not only teaches you to earn money from affiliate programs, but also teaches you to earn money by making website in your own subject of interest, to earn money from advertisements companies like Google AdSense and so on. The name of that training program is Wealthy Affiliate. Wealthy Affiliate also provides its own affiliate program to earn from it as well. Actually, Wealthy Affiliate is like an university for everyone who want to earn money online. You can find more details on Wealthy Affiliate by clicking this link:- newsonlineincome.com/wealthy-affiliate-review/


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