Know the difference: Multi-level marketing vs. pyramid scheme

CAPE GIRARDEAU, Mo. (KFVS) - A lot of people sell a product out of their home to make some extra money, maybe makeup or a weightloss supplement.

It’s called multi-level marketing, and even though it’s popular, it’s considered a risky venture.

According to the Federal Trade Commission, many people who sign on to sell can actually lose money.

There are also pyramid schemes, which can look a lot like multi-level marketing, but are illegal.

According to the Better Business Bureau, there are ways to spot the difference.

Sydney Waters said it starts with taking note of the main source of income.

“With pyramid schemes, your main source of income is going to be from recruitment,” Waters said. “They require you to pay a huge upfront fee to be part of this team or this club.”

Multi-level marketing will not require a large upfront fee just to take part.

“They may require you to buy products to sell, goods or services, but they always offer at least an 80 percent buyback, so that’s something great to keep in mind, what kind of buyback policy are you looking at when you sign up for one of these companies.”

Another key difference is the end goal.

“With multi-level marketing, the company should care about if the consumer actually wants the good or service. With the pyramid scheme, they don’t really care, they just want you to recruit, grow that team, and get that upfront money.”

Waters told of a recent scam reported to the BBB, where a woman invested in a company claiming to help people make money by renting out electric scooters.

The woman invested through cryptocurrency, an untraceable and extremely risky payment method.

Waters said the main source of income the woman was supposed to receive would come from getting people she knew to contribute money.

However, that money never appeared, and she couldn’t get back what she had put in. According to the report, she also never saw any of the electric scooters the scammer claimed to have.

Waters said someone who claims to offer a chance to earn passive income just by buying into a project for a large fee should raise some red flags.

Likewise, someone who requires sensitive information before allowing people to take part in a project likely shouldn’t be trusted.

“You go to one of these presentations, learn all about this pyramid scheme, and you put your identifiable information like your bank routing number, your social in, and they take that information and do all kinds of things with it,” Waters said.

People can search for a company’s name at BBB.org through the Scam Tracker tool to see if others have reported it as a potential illegal pyramid scheme.