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Pyramid schemes and multi-level marketing: What's the difference?

"Side gigs" are very common in America today. Almost everybody is an entrepreneur, of sorts, whether they're running a YouTube channel or driving for Uber. If you're looking for the right side gig for you, however, it's smart to know how to spot the difference between multi-level marketing (MLM) plans and pyramid schemes.

What's the difference?

Well, first of all, MLMs are legal. Pyramid schemes are not. After that, things can get a little murky for the uninitiated.

Essentially, it comes down to this: MLMs offer legitimate products to consumers, and you can make actual money that way. MLMs also typically let you recruit other people as your distributors, and you can earn additional money based on what those recruits ultimately sell to others.

Pyramid schemes often look a lot like MLMs, but there are usually some specific differences:

  • You may be required to buy a substantial amount of inventory before you're considered "part of the team."
  • You may be asked to pay fees, buy training materials and pay for your coaching sessions with a mentor.
  • You may be "encouraged" (or forced) to keep buying inventory even though you haven't sold what you've already purchased.
  • You're required to bring new people in below you as distributors and their fees, inventory purchases and other investments make up the largest portion of your income.
  • You may be promised rapid success, extravagant rewards and unrealistic wealth if you just invest more, buy more and recruit more.

Pyramid schemes eventually become unsustainable and collapse. When that happens, the higher up you are in the structure, the more likely you are to face charges (even if you are also a victim). If you're accused of being part of a pyramid scheme, make certain that you have an experienced criminal defense attorney by your side.

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