Network or Pyramid -- Where's the Line?

I've often heard the comment that "all network marketing plans are just pyramids" (or something to that effect). What's a pyramid (illegal) versus a real opportunity (legal)?

It's a really fine line in many cases. I don't know a whole lot of companies that don't walk that line in a balancing act -- and naturally there are some that cross it!

Here's an example: You are looking at a company who naturally encourages you to recruit, but who also has some nice products. You have an autoship minimum every month, and a replicated website to sell your products (not to mention offer the opportunity). You can choose what products to use as autoship. You can also buy a few extras of any given product to sell personally at a profit, but you are not allowed to stockpile. Commissions are paid on product and recruits, and usually the commission on the product sales is a nice amount. With relatively few recruits (usually between 4 and 6) you can break even.

Does that sound familiar? It's what I have seen with about 90% of the plans I've looked at lately.

So what's the pyramid? It's an opportunity that relies solely on autoship and recruiting new members. You may be given a replicated website for selling products, but you aren't given any training or suggestions as to how to market that website. Many times there is a fairly hefty autoship, so you need those recruits to be able to afford it. (Although that is not always the case.) The commissions on the product are so-so -- recruits pay much more. Generally you need at least 12 recruits to break even, sometimes much more.

At the extreme end is the opportunity that doesn't really have a product (or maybe only one) and recruiting is the only way to make money. Commissions on product(s) are absent or are very tiny. You have got to recruit better than 20 people (many times monthly) to break even.

(Note: I know that some network plans, especially in the telecommunications industry, do have very small commissions, but they make it up in volume -- it's the nature of their business. It doesn't automatically mean they are pyramids.)

Yes, it's a fine line. Take a close look at the opportunity you are considering before you decide to sign up. If recruiting is the only way to make money, obviously run away as fast as you can! With others, carefully consider the products -- are they consumables (people will need to buy them again next month) or one-time purchases?

Well, this post is long enough for now, so we'll look at consumables versus one-time purchases in a separate post. Both can be lucrative (and legal), given the right plan.