How To Differentiate Between Legit Network Marketing vs Pyramid Scheme

There are many home businesses you can do to make income from home, one of them is through network marketing platform. Many people are confused between the legitimate network marketing business and the Ponzi pyramid scheme.

Here are the quick guideline to help you differentiate between the two so that you can make a wise decision of which company to participate:

Legitimate network marketing companies are selling competitive and high-quality products/services that provides a sustainable source of income to its distributors/sellers. Below are some criteria of a legitimate business:

  • Provide accurate information about the company, its products and what one can expect as a seller of the company’s products and services.
  • Charge a nominal fee for a starter kit – the median cost for the start-up kit is $99 and usually includes items such as samples, catalogs, order forms and other tools that help the seller begin selling.
  • Have a product/service that is competitive in the marketplace and is purchased by the ultimate user.
  • Require sellers to hold little or no inventory and has a buyback policy to protect against inventory loading.
  • Promote consumer protection and guarantees. Many of these are voluntary standards that exceed the requirements of any regulations created by the Federal Trade Commission (FTC) or mandated by federal or state law.
  • Base compensation primarily on the sale of products and services to the ultimate user. Compensation can be generated from either your own sales or the sales of others you have recruited.
  • Take time to describe the business and give potential sellers adequate time to make a decision – any opportunity worth having will be there tomorrow.
  • Preferably also a registered member of DSA that is pledged to abide by a strict Code of Ethics that outlines a high set of standards for interactions with both sellers and customers.

Pyramid schemes take advantage of and defraud people because they:

  • Promise large earnings with little effort.
  • Promise that one can earn a substantial income merely for recruiting people into the operation.
  • May or may not be a “product” to sell, but if there is it generally has little or no actual value.
  • Convince people to buy large amounts of inventory which they cannot easily sell to others and is not returnable (this is called “inventory loading”).
  • Charge large up-front fees to get involved, either as a direct payment or in the form of an obligatory payment for “products”. Promoters of pyramid schemes will also try to pressure people to sign up immediately by suggesting the same opportunity will not be available later.
  • Base compensation primarily on activity (these payments for recruitment are called “headhunting fees”). Participants are convinced to pay to get involved with the promise of receiving “headhunting fees” when they recruit others.

In a pyramid scheme, money from new participants is used to pay recruiting commissions (that may take any form, including the form of securities) to earlier participants just like how, in classic Ponzi schemes, money from new investors is used to pay fake “profits” to earlier investors.

I hope the above explanation will help you better to differentiate between legitimate business and illegal Ponzi scheme.


Not sure where and how to find a legitimate business? Just drop me a message via any of my social media channels below, and I will guide you through. 

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