The Differences Between MLM, Pyramid Schemes, and Direct Sales
Of all the topics ever, this topic seems to stir the most animosity in our threads. I thought it would be good to take a few minutes and really examine the differences between the 4 business models. If you read to the bottom, you’ll find a link for a podcast where Ashlie and I have an open and frank discussion about how they may apply to our industry.
Multi-Level Marketing vs Pyramid
are they different?
Multi-level Marketing or “MLM”, also known as network marketing promotes creating a sales-force of distributors. The seller receives a commission on the sale of a product. They also get a commission or some form of compensation for all the sales made by the distributors who’ve been placed under them in a level lower than their own. Often there is a requirement to purchase as well as a requirement for so many distributors under you to purchase as well. The payment format can be pretty simple or very complicated. Multi-level marketing involves a product.
Unlike an MLM, Pyramid Schemes don’t have a product. They are disguised as and MLM, but they don’t have a product. The money paid out in this scheme is totally reliant on the number of people you enroll. Essentially, you all just move money around.
Both forms are often required to spend your own money. Often, to qualify for commissions, you must purchase product or “pay-up”.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett
Direct Sales and Retail Sales
compare and contrast
Most of us recognize retail sales as sales that are made from a location of the seller, either a store or a website on the internet. We’re comfortable with these sales because although it doesn’t ensure stability, it is a sign of it. The retail seller is always there during their regular business hours. Normally the retailer purchases from a manufacturer and sells to the end user. Sometimes there is a middle man who represents several manufacturers and brokers to retailers.
A direct sales person often sells at the location of the buyer, whether it’s at their home, business, or the home of a friend of the buyer in the form of a party. Direct sellers are normally independent contractors who receive a commission for selling. Often your local government has safeguards for people who purchase from direct sales people, like “right of rescission” that prevents the direct sales person from “pressuring” during door-to-door sales.
So, the question is, what do you want to work with as a health professional? The pyramid scheme is a definite no. Then, it depends on your business model. I know lots of people doing very well with the really good quality products in multi-level marketing, it’s difficult if you don’t build your team. If all you do is sell a few products here and there, you won’t get rich with MLM’s. Worse than that, you can end up loyal to your up-line and have a closet full of product going bad, money going out monthly for your monthly order, and no money coming in.
I do know people who are getting rich building the people end of the MLM’s. The key, I think is to decide what you want from your business. It’s hard work too, but some are having fun while they do it.
We’ve also successfully created programs for you that allow you to easily incorporate products into our programs, MLM as well as retail and direct sales.
The other considerations; do you have a storefront where you’d prefer physical inventory or are you set up online and the last thing you want to do is to create a distribution center.
Listen to my interesting conversation with Ashlie in Health Coach Conversations Podcast.
Join in the conversation below. Do you have physical products in your practice? What business model do you prefer? Are you happy with how it’s going?
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