Is it a pyramid scheme?

In his eye-opening book, Coercion: Why We Listen to What “they” Say, Doug Rushkoff describes a pyramid scheme in two lines:

“a pyramid scheme is…[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][where] the need to subscribe newcomers outweighs whatever benefits the products or system has to offer. Many MLMs sell distributorships more than cosmetics [name your product or service – KK].”

So yes, you are acting like a pyramid schemer according to this definition if, in your practice of the business, your focus is more on getting new recruits to buy in than on getting customers (I mean customers who are NOT selling the products).

“Does anyone actually sell the product?”

Guess not these folks. They don’t want to sell it unless the customer also agrees to sell it.

But there are growing numbers of people, especially women, who don’t want to follow that model. They want to build a customer base. And they come to me in droves, often secretly, saying their upline don’t want them to go after customers. “There’s no money in customers,” they say. “The money’s in the recruiting.”

This is not a good thing.

Three explanations: Either the product’s not good enough for anyone to buy unless they’re also selling it, the rep feels it’s overpriced and hesitates, or the pay plans of companies (with good enough products) need changing to stop perpetuating the pyramid scheme types of behaviors which are deemed so “low rent” by the rest of the world.

Here’s my challenge to networking companies:

Take the leadchange your comp plans so they don’t continue to perpetuate the practice of NM as an apparent pyramid scheme.

Divvy up the money you pay out differently: pay more for getting and retaining regular customers, so they’re worth pursuing.

How much longer do we want to hear from thousands of reps, “My upline doesn’t want me to go after customers because they say all the money is in the recruiting. But I don’t want to do that.” We are driving them away.

We should be grateful that we attract people who want to build up a customer base, not just a recruiter base. Getting customers is what all American companies do. Except us, I guess.

And reps who love network selling: Be proactive. Find companies whose products you love AND where they pay you enough to build a customer base. They are out there, I know first hand.

Did you know that the income of all the major NM companies show that very thing: 95%+ of all their income comes from people ordering the product, including the countless people who stopped selling long ago. The rest – 5% or so, comes from the sales of distributorships.

Rant over.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

About the author

Kim Klaver


  • Kim,

    I’m proud to report that Melaleuca changed their compensation plan last fall significantly in favor of enrolling customers, not just those looking for a business.

    For example: Used to be we got a $100 bonus if one of our customers also enrolled 8 customers of their own in the first 60-90 days (other qualifying criteria applied, as well.) Now? We get a $100 bonus if we enroll 4 customers in a calendar month. 🙂 Even if none of our customers enroll anyone. If we do it month after month, we get that $100 month after month, in addition to the other ways they pay us.

    We have some very happy customers enrolling other customers now. 🙂

    And, as you know, MomsForLife is focusing on enrolling customers first and foremost (because experience tells us that our best business builders are our happiest customers – those who’d be here shopping, anyway, even if the company didn’t pay us to spread the word.) We celebrated BIG TIME when the company made those changes to the comp plan, because now we are compensated for the way WE build our businesses.

    Thanks for showing us the way, Kim. It’s making a big difference for us, and more of us are having fun (again) and surviving the process of creating the results we’re after…which, as you so often say, is the trick to this business. 🙂


  • Very good things to hear. Would that other companies would follow such leads…

    Our upcoming network sellers exchange will be an interesting test to see which products networkers sell are indeed good enough for others of us to buy. And it will also be a chance for all product lovers, customer gatherers and networkers who want to support the industry by buying from its members, to have a safe haven (read: recruit free zone) to meet up with others and swap stories…and buy and sell from each other.

  • >…my challenge to networking companies… change your comp plans so they don’t continue to perpetuate the practice of NM as an apparent pyramid scheme.

    Is refocusing comp plans enough to shift external perception like this from BusinessWeek?
    Many [makers of such products] employ the aforementioned multilevel marketing sales tactics, which the companies refer to by euphemisms like ‘network marketing’.

    Clearly, overcoming existing prejudice will require serious counter… a process I suggest begins here and now with a genuine ‘NM is not MLM’… not just from the companies – of whom there’s less than a hundred or so with real impact – but also the many thousands of distributors thereof.

    ‘Network Marketing… isn’t that just another name for MLM?’
    ‘No. It isn’t.’

    Am I nuts? Of course. And, my differentiation is valid…

    In MLM, the emphasis is on the ‘multi-level’ thing – building a tiered structure.

    With Network Marketing, the deal is to ‘market’ to/through a ‘network’.

    Far from simply being a more palatable pc way to describe the same thing, they’re very different.

    Thing is though, they’re often confused and merged.

    So, perhaps an additional challenge is for distributors/associates to ‘proudly own’ the distinction in both principle and practice?

    If not, then how long will it be before we’ve shuffled further on down the road of self-obfuscation and find ourselves ‘involved in Relationship & Referral Marketing’?

    I shall of course be launching a range of ‘Network Marketer and Proud’ clothing to push this point and bolster my flagging finances.

  • gulliver-

    One way to start to change the perception is for people to stop recruiting all their potential customers.

    One reason I suggest companies to take the lead is that their pay plans are the reason for the blind focus on recruiting. That IS where the money is for most of them, to say nothing of the recognition and focus.

    As to the distinction between Network Marketing and MLM – I don’t think the people I’m talking about make a distinction. Network Marketing sounds better than the despised mlm.

    It’s like ‘massage’ of old, versus body work or sports massage, today.

    If ‘massage’ could raise its image, so can we. But first, the practitioners have to change their behavior.

    Ergo, I say that companies who change their payplan will change the behavior of their reps, because like anyone else, all things being equal, reps will do the things that give the greatest financial return.

  • K, I’m not disputing the need-for and benefit-of companies shifting their focus away from the current position.

    My view is that it simply ain’t gonna happen. I see real change coming a few generations down the road – among companies not yet even conceived. The existing majors will simply laugh at ‘change’ suggestions.

    ‘Fish stinks from the head down’… there’s too many prominently positioned folk with strongly-vested financial interests who’ll work to keep things as they are.

    Here I firmly tag some prominent coaches… those who, with large personal downlines, encourage ‘duplication is the path to abundance’; and others who tell us ‘we all do network marketing everyday’ whilst co-owning companies which strongly suggest ‘spend more money to enrol at this higher status/bonus level’. That type of behaviour is simply corrupt.

    Apart from outspoken contrarian pundits, the onus firmly sits with the distributor. Your ‘be proactive’ come-on is arrow-straight.

    My ‘This is NM, not MLM’ line is simply to once-and-for-all draw a real and meaningful distinction between two very different principle+practice methodologies.

    And whilst neither a simple not speedy task, if the business is truly to step free of the tarnish someone has to take a strong stance… or else we’ll drown in crap.

    Perhaps it’s time to hijack the old Apple 1984 superbowl commercial and use emotive imagery to define the distinction… to shake things up. God (and a lot of her/his downline) knows that’s what needed.

  • g:

    What is the history of the name change? (mlm to network marketing).

    Do you know who initiated it and what the purpose was, other than to distance themselves from the dreaded “mlm” moniker?

  • Damn, I wish I knew when. Hopefully someone else knows? [Fogg – you reading?]

    And I’m sure the switch was purely a ‘distance ourselves’ makeover.

    I’m genuinely not aware of anyone drawing the distinction I made. Perhaps people are neither sufficiently aware nor care enough – so it’s at least ‘fresh’ and offers a genuine angle to those of us working for change…

    Hell – ‘at least another tshirt slogan’… I can feel a ‘NM is not MLM’ campaign in the making and perhaps even a [gosh – whisper it] ‘movement.

    Anybody here want to help ‘seize ownership’ of that term and rebrand it accordingly…. boldly, intelligently… ‘this is what we’re trying to do’ honestly?

  • Hi Kim,

    Thanks so much for this post! I am about to do a podcast on ‘What is MLM?’ and this helps to give me some more perspective on this. Look forward to listening to you this Saturday on the Network Marketing Magazine’s speaker series :).


  • Hi Kim,
    Just a quick note to say thanks for this post as well. In my opinion NM and MLM is all the same to me we still have to meet people for selling and buying…that hasnt changed.

    The only difference, I find, is the various compensation plans the companies have and most of them are punishing and stressfull to some of us.

    And are we really getting a fair share of the market?? How can we find out if we dont understand the plans and when we do(many months/years later)guess what we are not!… to our disappointment.

    Whose is making it …the 1%-5% league of so called heavy hitters making big bucks from more than 95% of the stressed out and broke downline?

    We have to go meetings travelling to various towns to listen to them over and over. We honestly think we are doing the right thing….are we? Where are we now?

    And without being to opinionated, these so called heavy hitters are in a different league than some of us.

    They are either practitioners of some degree or have been in many MLM companies with many contacts. It seems to me that money is what motivates them.Where’s the passion?

    Also have you met a company that will disclose or show the faces of key people from the company and actually express their passion for the company products either on your web page(video presentation) or in person…food for thought.

    I look for a company that has that passion because I am very passionate about my products and what it can do for my people….health first than wealth. Its their choice.

    Everyone that I meet is looking for answers to better health. Its thats easy to talk about health issues… believe they believe.

    Can you imagine talking to people about a car,house or money when they are not in the best of health? We dont know what state of health they are in.

    Thats what I look first when meeting people.Finding out what will make a difference in their life.

    However, in my heart NM is an incredible vehicle and great opportunity to get us out there to share, passionately, our products and knowlege. People are looking for answers.

    Regards, Brenda

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