How Multi Level Marketing (MLM) schemes with Pyramid Structure works ?

POSTED BY Jagoinvestor ON October 29, 2012 9:30 am COMMENTS (196)

Today we are going to talk about MLM or Multi Level Marketing Schemes which have a pyramid kind of model. For years and decades, these kind of schemes are active and a lot of people get trapped in these Pyramid Schemes and lose their hard earned money. In this article, we will see the common mechanism they work on and their characteristics. We will also create a dummy Pyramid scheme to show you the traps & pitfalls. Before we move ahead, get this fact that we are talking about those pyramid schemes which also have different levels of people one on top of other and where one guy pays money which gets passed on as reward to another.

Multi Level Marketing Plans

How Multi Level Marketing schemes work?

Multilevel marketing schemes are generally network based marketing schemes, in which a person has to add more people under him. The people obviously pay some money to “join” the business and then they add more people under them. In almost all the schemes, the person is incentivized for adding more people under them.

You all must have heard about the AMWAY business model, which is nothing, but a great example of Multi Level Marketing, while the business is legitimate and there is no fraud in it, still it also falls under a pyramid model. Even I have attended its meetings once when I was novice child :). The business model looked so easy, just pay Rs 5,000 to join the business and then keep adding more people to “business” and you get some percentage from the entire sales under your Tree. There are various ranks like Silver, Gold , Diamond etc., and the higher your rank, the more you make. Lot of people make money in it through legal way, and more you work harder , the money you can earn, but the point is , people who get in early make more money and the people at bottom struggle a lot.

Why most people lose money in Fraud Pyramid Schemes?

Guess what?!  A lot of people make money in these Multi Level Marketing business models, and they become the ambassadors of the business. They flaunt the cheques and the money they make and believe me, some of them are real!. They really do make money and we will quickly see more on that, but the point is, that the majority of the people lose lot of money and struggle in these kind of get rich quick pyramid schemes. And that happens, because there is a limit to adding people. You can’t add more people in the tree after a certain point and when the tree becomes bigger, than it’s trouble point, it’s reaches a  kind of saturation level when the biggest chunk of people who are at bottom lose all the money. Here is an example graph which will give you a good idea of what I am talking about.

How MLM or Pyramid Scheme Works

Example of SpeakAsia

You must have heard about the latest craze called Speak Asia Online! I will really not be surprised if you tell me that you were part of it! I will not be even surprised if you tell me you made lot of money too! That might happen if you started earlier! Because then, the scam was still in the making! If you joined at the end, you were at the bottom of the tree you lost your money. This is how it worked!

A person can join SpeakAsia by paying Rs 11,000 and becomes a “panelist.” He then starts getting 2 surveys per week and getting Rs 500 for filling up each of them. That’s around Rs 4,000 per month and 48,000 per year and that was how Speakasia was promoted by its member to lure other members. This was at the start and though the amount of money  coming IN was less than the amount of money which went OUT, and the whole model was unsustainable in long run, it was definitely sustainable in short term. Just think about it! Is it not easy to pay 10 smaller bakras if 100 bigger bakras join the next batch?

And after all that, it crashed! But still there are innocent people out there who claim that it was genuine and it worked for them. They are not wrong! It really worked for them and they made money, but that was part of the game. They wanted you to make lots of money so that you can bring more people in and then one fine day when they make a really big pile money that they can just vanish! Poof!

Breaking Relationships !

The biggest other bad thing about these pyramid schemes are how the relationships become sour and messed up when the person who is part of MLM tries to add all their friends and relatives into the MLM, suddenly they start looking at humans as “targets” , Here is one incident which happened with Shantanu 

I know about this as I faced these offers couple of times from my very close friends and relatives. And I know how hard it was for me to tell them “I am not interested”. Those who is a very extrovert in nature and also convince people more, like insurance agents can get success. But most people are in the other side only. In fact one of relative faced very tough challenge later on when people found his scheme a scam. Anyway, I think after such articles also these schemes will come in future and again many will trap in them also.

In one other incident, one of the Fraud scheme called as “Japan Life” made someone lose his girlfriend

Long time back in 2000, my girlfriend got stuck up in a similar scheme called “Japan Life”. They used to take 80,000 Rs. and will give you a magnetic mattress. She tried to get me in as well and I was almost about to get trapped but sanity prevailed and I escaped, however since I did not join, I lost my girlfreind forever. I remember this fraud came up in Star News and I could see so many people getting cheated. This was around New Delhi and surrounding areas

Some other popular Multi Level Marketing and Pyramid businesses which were actually a scam were GoldQuest, StockGuru , UniPay2U etc etc (add more name in comments section if you are aware about them). Moneylife has also done this story on Multi Level Marketing companies in Forex trading, Have a look at it.

Jagoinvestor MLM Scheme – Lets create a SCAM Plan right now

Let me know you how simple it is to create a pyramid scheme and it will look so attractive . You all know I have written a Personal Finance Book called “Jagoinvestor – Change your Relationship with Money.”

Now here is a scheme

  • Pay Rs 1,000 and become a member of the scheme
  • You get the book FREE on signup
  • Make a person join the pyramid scheme and get Rs 250 for each person
  • You can add any number of people to this scheme

You realize that if you add 4 people to the group, you will get a 1,000 bucks and a Free Book! So it’s extremely easy for you if you join the scheme early.

Let’s say 10 people join under me.

Level 1 – Add 10 people

So 10 people will pay 1,000 each and I will make Rs 10,000 total , and I will send back a FREE book to all the 10 people. I incur Rs 5,000 expenses and make a cool profit of Rs 5,000.

Level 2 – Add 100 people 

Now let’s see… Each of these 10 people persuade 10 more people under them, and 100 more people join the scheme. They will pay Rs 1,000 each to me;, that means Rs 1,00,000. I will spend Rs 50,000 for the 100 books , and I will be left with Rs 50,000. But out of this 50,000, I need to give a share to each member at level 1, for 1 person the incentive is Rs 250 , so for 10 people, the incentive is Rs 2,500 for each person at level 1, and because there are 10 people at level 1, I will have to pay Rs 2,500 to each at level 1, and I will have to share 50% out of 50,000, that’s Rs 25,000. But I still keep Rs 25,000 with me.

So now you can see, I made a total 5,000 from 10 people at level 1 and Rs 25,000 from 100 people at level 2. And each of the 10 person at level 1 made cool 2,500 from 10 people they added under them, they not only recovered their 1,000 back, but also got extra Rs 1,500 and a FREE book! Wow! This business model is amazing!

Level 3 – Add 1000 people 

So the business is expanding and the word is spreading and my book ambassadors are in the market advertising this scheme and showing the kind of money they are making and the free book they get! Dude! They also have a valid cheque with them! No fraud! . So the word has spread like wildfire now and everyone wants to join this business.

Now, lets say each person at level 2 adds 10 more people under them again, because the word is spreading about this awesome business. There will be 1,000 people at level 3, paying 10 lacs to me and I will incur 5,00,000 expenses. I will pay 2,500 to each person at level 3,  that means 2.5 lacs in total, but I will still keep 2.5 lacs with me.

Level 4 + 5 + 6 

Can you see, how it’s growing? And how people are making money? From 1 person to 10 people, and from 10 to 100 and them from 100 to 1,000? But what next? Level 4? Level 5? Level?

When this reaches level 6 , there will be 10 lakh people under this scheme and they will be paying 100 crores to me! . You guys are going to hate me at that level! . Because you will never see me again! . Neither will I send any more books to anyone!, Nor will I send any share to anyone. I will just run away and you wont be able to trace me! . Any person who would have joined in at the start would find it easy to grow and spread the business. But people at bottom will just not be able to do anything, they are the last batch of fools!

Real Life Examples related to Fraud Schemes

Krishna shares

During my College days there were 2 such schemes ( 7000/- & 1200/- each) introduced to me by my friends & asked me to join them. I explained them that they are highly unsustainable by using simple exponential formula (2^e). But still they thought i am a fool & not making money out of this wonderful Golden “Pyramid”. Thanks to God for that!!!. I just want to say that “User Pure Maths” before entering or dealing with any thing with your hard earned money. Be on your foot not on air.

Sam shares

In 2007, one of my good friend called me when i was out of station. “Sam, i have something great to share with you, when are u coming back? i cant wait to meet you etc etc”. I was kinda surprised and was very curious what he is gonna talk about. He took me to this office where many others showed cheques explained business model, asked me to buy some product and become a member. People were so promising that they will help me , let me grow & earn lots of money and all.. It was ‘Gold Quest International’. That day i made the biggest mistake of my financial life. They made me buy some Gold & Silver coin for Rs.38000 rupees using my credit card. After i joined i tried to reach out to some people in my circle and most of them are already part of it & others are not interested. To pay this credit card bill, i had to take a small personal loan. It was the initial days when i got into job and all these incidents made my financial position worst.

Sachin Shares

I lost 20 K in this MLM bullshit … it was with the name Cossets in Delhi . They arranged a huge pomp show in Siri Fort to show off the happiness of the people who had made money and became millionaires. There were multiple stores in Delhi where u cud purchase if u were a member Then some Ex army also got fooled joined in and invested smthng like 4-5 Lakhs his life savings got duped and then he made a case on the company . Phew Cossets was like GAYAB.

Suhas Shares

My brother was a victim of it late in 2002 in scheme(scam) called netkhazana.He lost around 17k at that time.And from that time I have got recommendations from freinds(?) and relatives(?) in to hell lot of schemes but never got into any because of the first bitter expereince. I suppose this schemes are gr8 if you have selfless people involved but that does not happen as the corpus grows to crores of rupees and people at top tempt to cut the goose.

Other Models of Scam

There are many other multi level marketing scams, which are not in a pyramid model, but they ask for money for some awesome investment based on some logic and then they really give back awesome returns to handful of investors, who spread the word about the scheme and them more and more people join the investment scheme and once it becomes very big, the person who started that scheme vanishes. The Govt is going to take some tough measures on these kind of fraudulent schemes. Here is a nice video which explains more about this.

Beware of these Get Quick Rich models

There are a hell of a lot of schemes and businesses running which show promises of making awesome returns from gold, stock market, real estate and many other kind of investments. They mostly will look really attractive and credible, but always remember that if someone is offering you anything better than bank fixed deposits, there is no doubt that there is some of the other risk involved. The bigger the potential return, bigger the risk.

Disclaimer : Note that we have just discussed how Network Marketing works and the basic mechanism. There might be various businesses and models which are making money, and might be good. This article just wants to bring awareness among people on the concept of pyramid schemes and they fool and loot majority of people in our country .

If you come across any Business like this, first make sure you check that its a member of India Direct Selling Associationwhich kind of gives a legitimate name and also they follow certain code of ethics. If its not part of this, I would say better stay away from it. Amway is part of it. So, not all Multi level marketing models are fraud, a lot of them are genuine also. Here is what Sunil shares about this

A Multi Level Marketing is different from Direct selling. Any company selling directly to the customer, removing all the supply chain management commissions behind, will be governed by Indian direct selling association, (within India) and world federation for direct selling association, . There are many companies like Avon Cosmetics, Amway, Oriflame, Herbalife, Tupperware etc.. registered under these federations. These companies work under the ethics defined by the IDSA or WFDSA and are very harsh on the people who dont adhere to these ethics. Many people reading this article will agree that the quality of the products they produce are amongst the best in the world. Many people are under the impression that these companies are similar to the other ponzi schemes.

Let us know what do you think about the concept of Multi Level Marketing and associated businesses. What is the biggest reason you think people fall for them and get trapped?

196 Replies to “How Multi Level Marketing (MLM) schemes with Pyramid Structure works ?”

  1. Chetan Thakur says:

    1.they fail because they do not understand the business and think we have to make chain… 1st check do they really understand the concept of this business
    2. they do not promote , yes there are so many people around you who are into this business but are ashamed of promoting the business. Dont do it if you cant promote it.. person who involved you in the business did you really sit with him to understand the concept. no you didnt but yes you did crib about the business 🙂

    What is SCAM in mlm??
    Scam happens in every industry but since this concept is so strong people use this concept to fool the people.
    example : someone is driving a car and he kills a person with it. who is responsible for it ?? car or the person.. and is person
    a knife can used for chopping vegetables and slitting a throat. whos falut it is ..person or knife …off course person
    same way mlm is a toool ppl who drive it are the culprit not the concept

    What is illegal mlm??
    suppose you are going out with a kid say an infant of 2 years and he sees a dog baking tell him its bow bow now after some times he sees a cat and says bow bow you tell him its meow not bow bow …same way you need to understand the diff between legal and illegal
    here is illegal mlm
    1. where no product is involved but just the money .. you get some one and then he will get some one … IT IS ILLEGAL… there is NO PRODUCT but just the COMPENSATION
    2. company gives you COUPONS instead of compensation .. again it is illegal … there is NO COMPENSATION
    3. Company tells you get more members and we will give compensation after few months ..once we will expand…. there need to be a specified compensation plan .


    after reading above reviews it seems people who never did mlm and was just a PART of mlm are writing there reviews here….
    but you would like to take tips from SR Tendulkar if its cricket instead of SRK …coz you need to check the expert.

    if you are doing mlm do the research and then do the business and speak with the experts of the business… I can write more but there is a lot to write.. so please send me your questions and I would love to answer them …mlm is a boon and its the future

    1. Thanks for yout comment, so you are supporting MLM frauds which happen ?

  2. Chetan Thakur says:

    hahaha…. really great article.
    guys please clear your mlm concept 1st the preach about it.
    if you have any doubt then please youtube bill Clinton and mlm.

    its easy to write anything about you dont even know ..but do you really understand the concept

    mlm is just a substitute of advertisement, if you see Amway , Amway never uses any personality in their ads, just the product …
    please dont ask any failed student about the subject , he will always blame the teacher or the subject…. u need to pick the person carefully

    what is mlm??
    ans : lets start with an example of any mobile phone
    you see an ad on tv, that ad costs 10 lakh for 10 secs and if on diff channels you find that , say 100 times a day .. you are spending 1 cr a day… or say 30 cr a day..
    how does company recover that money.. the answer is from the product.. who pays for it , its consumer.
    now question is how do we purchase a mobile ..
    ans is either we ask the shopkeeper, or check for reviews on the net or any other place
    so what actually happened in the whole process..
    1. ad maker made the money
    2. TV channel made the money.
    3. model used in the ad made the money
    4. friend who actually helped in getting the mob. got nothing
    5. who paid ??? you

    now the fact is 80% of the product we get from the market is by referral.
    who makes the benefit. your favorite superstars who never use that product but promotes that and you pay for that
    in mlm , no ad is used to promote the business but the person refers to his friend ONLY after using it.
    Its TOTALLY your call if you want work further as a distributor or remain a consumer
    MLM compnay pays that 30cr of ad money to the person who actually helps in flourishing the buisness rather then any ad maker or any famous personality
    In short this is mlm.

    pick any business, 80 % of the business fails in 1st yr.. either of working capital or staff issues. and from remaining 20% ,with in next 5 yrs ..80 % fail again

    look at your self and other business you TRIED… like restaurants so yes people can fail in this industry too.


    1. Venki says:

      You might be in the MLM, and seems to be an expert in MLM. Can you explain us how AMWAY works? Can you compare product benefits over peer products in the market?

      Remember, there will always be pros and cons. But, it is freedom that decides who will be successful. It doesn’t matter about statistics of how many businesses failed. There are so many dynamics that decides business success. If the product accepted by the consumer base, the company will surely succeed. There is no proof that MLM is future, otherwise every business would have now been opted MLM.

      Your comments please.

  3. anil dcunha says:

    Dear Manish,

    I have gone thru ur article in detail and i would compliment u in shedding light on MLM and related businesses prevailing in the Indian market.

    I would like to put up some questions which i suppose people should ask and then enter into such schemes only if the answers are YES.

    1. Is the company a member of the IDSA?
    2. Since how long it has been operating in India?
    3. How many countries is this company operating or is it a fresh company ?
    4. What is the turnover of the company and what is being paid to the associates?
    5. Is there a plan?
    6. Is is compulsory for you to make members or one can join individually and buy products for self consumption?
    7. Are the products genuine ?
    8.Have u used the products and ascertained yourself about the claims being made by the company?
    9.If the products are costly then have you met someone who has used the products and taken first hand information from one of the users known to you or somebody?
    10.Have you attended the seminar conducted by these companies personally or are you relying on information from your friends or the agent?
    11.Have you cross-checked from the person who is making claims of HUGE MONEY by your self checking the financial credentials of the person introducing you the plan/scheme?
    12.If the person introducing the plan says he is making money have you checked his bank account to make sure that he is getting the commissions as told to you?
    13.Is it a fair biz model, i mean the person who is doing the work should be earning rather than a person who has joined earlier in the biz? only and only then it is a fair biz!!!!!!!

    These are some of the questions which could be asked and many can be added so that atleast we can ensure that few people fall for the trap of making quick money which i suppose is not possible without putting in hardwork.

    To further tell you i am an member of Amway since last 10 years and i have found that it is a company which gives fair chance for members to make money but it is equivalent to the amount of effort put in by you.

    They do not force you to make members infact the JOINING IS FREE. THERE ARE NO CHARGES FOR JOINING AMWAY.

    I have never found once Amway forcing you to make members. They say that you use WORLD CLASS products and if you feel they are worth then SHARE the information with like minded people and let people use the products ( they have a 30 days money back GUARANTEE for all products manufactured by them)

    Only after using the products if the person feels they are WORTHY then either he has the option of buying from a member or the person can himself become a member ” AS JOINING IS FREE “.

    Please dont think i am making any biz proposition but i have read you article and some of the comments as well and i thought even i need to contribute as i am regular subscriber of JAGO INVESTOR and i am a member of AMWAY and i need to put up my point of views.

    So i would suggest people to take their own decisions based on their UNDERSTANDINGS & KNOWLEDGE as nobody is forcing you to join AMWAY or any other biz as a matter of fact. if there is anyone forcing you, then be BRAVE and say NO as you live in a FREE and DEMOCRATIC COUNTRY.

    1. Very nice comment. .I think you have put the checklist which will just filter out all the nonsense MLM businesses .

      1. SUNIL AGGARWAL says:

        Leave aside all complications. Just see whether the product being sold by a person (member of ‘MLM’) is “value for money”i.e. quality product at a competitive price. If yes, the scheme is likely to survive although the person at the bottom of the pyramid will have to work hard to earn enough. More likely, the product should have an edge over others available at the shops as a customer would prefer to buy from a shop if there is no benefit of buying from a person. Selling the product to known persons would be a very limited market; hence the product has to have a competitive edge. This is likely Direct Selling Agent with a difference that the Agency is managed and grown thru Members only.

        1. Thanks for your points Sunil !

  4. Pradeep says:

    Hi Manish.. Really a nice article.
    I have faced the situations many times from my friends, where they compel to join the MLM business (be it Amyway, GoldQuest or anything). I was consciously aware not to join it.
    I have been lured atleast 6 times in the last 1 year in US, by unkown desi guys to join some sort of MLM. They will speak as if we know them for years. Finally at the end of the conversation they ask out phone number.
    Now if someone talks to me nicely also, doubt lingers in my mind if he has any hidden agenda.

    I came across this short story in youtube about MLM (comedy):
    This is in Tamil (but has English subtitles). This summarises everthing about MLM.

    You are doing a good job in promoting financial literacy. I came to know a lot of things from your articles. Great going!!

    1. Thanks for sharing that video and your experience .

  5. Rayan Fernandes says:

    Hello Manish,
    an eye-opener article to those who fall prey to money-laundering MLM companies like NMart, Amway, Unipay2U, Visarev, Unigold2U, Nanogorex, Bizzree, Deo Soft, RCM, RMP, Tycoons Empire and many more.
    Please explore the belove link-

    Thank you.

    1. Thanks for that link , will look at it !

  6. VIKAS says:

    Great Article, Well explained in advanced.
    If any body wants to check, the maths of doing MLM follow the link to a ponzi scheme
    (a great video from khan academy)

    1. Thanks for that link Vikas .. Good to see that

  7. Srinivas says:

    There are two ways of seeing this article.

    From a sellers perspective(if i am already a part of MLM or furthering the cause and advise it to my clients) or from a buyer’s perspective(i want to know what it is and if i fully understand and feel compatible, may join.Either of these two threads can be clearly seen in each and every response. Of course, there are many painful experiences of various individuals who burnt their fingers.

    If one is looking from the first perspective, there is nothing much to be added in the article.

    However, it provides a logical explanation(with a good illustration) as to how the scheme functions, for the benefit of the second group.

    The article doesnot say MLM is good or bad. In my openion, it only sensitses a lay man to understand and take a wise decision.

    Lot of comments saying that “I lost” and no/very few comments to the contrary is self explanatory.

    1. sachin kumar says:

      There is a third view and that is that you are an idiot

    2. Thanks for your comment Srinivas , exactly the same thing which I wanted to communicate !

    3. Gopi Krishna Settur says:

      My dear warren buffet-II,

      Iam the eye witness and saw three of myfriends who fall prey and became like psychos after joining MLM scheme. I attended their sessions to only realize that people’s crave for extra income is beeing cashed.

      I saw it not only in India, but also in USA. where many people mainly desi guys / girls who are on dependent and student visas joing to earn extra income to reduce the burdens on their families india but ultimately ending up losing every thing.
      and also i tasted the milk powder drinks they sell like verry blast and my stoach balsted that out almost instantanelously.

      in turn the links in MLM (people) exaggerate that their products are very superioor and matches no product in market, if that was the se why dont they release in open market and advertise the so called fact.

      Work hard and you will getit. once you get it spend it on necessities not luxuries. save and invest wisely.

      not in this cheap MLM tricks

  8. Rohit says:

    Hi Manish

    I recently ran into a business offer. They say its a data entry job. Online surveys etc. They are charging around Rs.2500 which they claim is reimbursible with the 1st paycheck. And a monthly paycheck is promised based on the quality of work. Is this similar to MLM? Is there any method to check out if these companies are authentic?

    1. I think I already answered it on our forum

  9. Sandeep Sudhakaran says:

    I wish there was some genuine MLM scheme which never gets saturated and no one get cheated. I actually liked the idea of banned SpeakAsia, where even though there is some enrollment fees, then people get paid up for the amount of work done (completing surveys). With this many can earn extra by working online.

    1. Srinivas says:

      Good wish. I too join you in wishing.

      In such case, one has to ask a logical question. Am i doing any value addition by answering the surveys. What i mean is i filled a survey and my 10 years son filled a survey. Is there any difference.

      It is logical to wish for a return, only if one does value addition. Or are there free lunches?

    2. No business in world will pay you money less than your efforts,esp for long term , its as simple as that.

  10. Ramakrishna Gunisetty says:

    Hi Manish,

    Very nice article and an eye-opener for all.
    Recently, I came across one guy with well dressed in formals in a shopping mall and he pretended that he had seen me somewhere and told me that I am very well known to him. By then I sensed its a trap for some MLM business but exchanged our phone numbers. The next day morning he called me and asked for my appointment to discuss some business proposal, in short he said its like MLM. I just ignored him and taught him a lesson in my way.
    These kinda of MLM business just spoils the face-value and relationships if the others are not interested in them.
    This is my opinion.

    1. Thank for sharing your experience with all of us .

  11. jatin says:

    manish sir, very well explained and nice article. i was thinking to ask you about same article bcoz some of my frnds are trying me to join qnet like mlm scheme. can you brief me about reality of qnet scheme as it is banned in so many countries.

    1. Its just like another MLM i guess, see comments section , someone has talked about it

    2. Manish says:

      Do you mean people who are in direct selling are not honest and cheap. You know Warren Buffet itself own few network marketing companies.

      1. sachin kumar says:

        Bhai tere me Keeda hai kya

  12. Karthik says:

    Warren Buffet says “Honesty is very expensive gift. Don’t expect it from cheap people”

    1. thanks for that quote !

      1. Manish says:

        Do you mean people who are in direct selling are not honest and cheap. You know Warren Buffet itself own few network marketing companies find out on net.

        1. We are talking about fraud schemes here , not all kind of MLM businesses .

  13. BD says:

    Have you heard about Qnet which is similar kind of MLM scheme though it is little more business model oriented vs. similar so atleast you get some product when you first become member. I have few people who are CA’s or left their jobs to do this full time. May be its true to make quick bucks in these schemes but i never believed in making money easy ways anyway…

    1. In that case its just another MLM , there are tons of MLM’s where you join and get products, thats the catch, it does not look like a MLM , becuase you feel I dont loose anything . No doubt people will be making money in it , seems a new one 🙂

      1. Sudipto says:

        QNET is going to be another big scam in the next 2 years for sure.

        Most of these MLM vanish just to reappear again with a different package but with the same core idea of fleecing people. Gold Quest International became Quest International (QI) and now became QNET. Gold Quest has been banned in several countries but now the same people have started this new scheme related to travel, tourism and wellness industry. A lot of people are pitching for QNET these days.

        Only the people at the top make money. The middle tier of the pyramid hardly make any money because the way these scheme works, you have to start investing your family silver to make left and right leg. So you end up investing money in your wife and family member’s names and thus have a big exposure.

        1. Thanks for the comment Sudipto , exactly the same thing which I wanted to communicate !

  14. Dinesh Jain says:

    Hi Manish,

    Find the below link for an article titled “India May Introduce Direct Selling Act in 2012”

    1. Thanks for that link , I think its in favour of curtailing MLM , right ?

      1. Dinesh Jain says:

        Yes Manish,

        Once this act comes, all chindi pindi companies will get wiped out and only genuine MLM companies will stay

        1. Thats great to know . We want those kind of acts , they are required in our environment !

  15. Dinesh Jain says:

    Franchisee model (like Mc donald, pizzza hut. kfc) are one of the most successful business model . But for all the educated people i would like to inform them that when this franchise concept came out initially in 1950’s , it was being seen as a scam bcz of xyz reason bcz the concept was new and most of the new concept is being ridiculed by common and middle class person. It’s only the person who have the vision to see tomorrow as on today, adopt and accept such concept. Once the concept is popular, then the common public accept it.

    When computer came in India, people ridiculed it and were under impression that it is going to eat away the job of many people. But just see today, without computer and laptop, nothing is possible.

    Most of the culture in India is getting exported from foreign countries. Fax , washing machine, laptop, desktop, mobile, shopping malls are some of the examples.

    So just wait and watch Direct selling / Multilevel mktg will make their mark in India.Regulatory body might come very soon. And good companies will keep on doing their business

    1. Franchise model is not MLM , there is no tree being made , Its altogether a different concept . Here there is a business run by someone and the end product is sold to someone to make profit, not to make him part of the business.

      1. Dinesh Jain says:


        What i am tring to say is every new concept is being ridiculed, same was the case with franchise model, but now it’s widely accepted.

        The same acceptance is going to happen for MLM also.

        1. You have got a genuine chance here to speak about it , can you share some genuine business model , we can discuss about it here and also share it with more people. Good things always deserves to be shared .

          1. Dinesh Jain says:

            i would like you to go through


        2. I agree with you , great idea’s are always ridiculed, so are you saying that Pyramid MLM models are great concepts with potential for everyone who joins it in equal manner ?

          1. Dinesh Jain says:

            Not all the companies who follows this model…

  16. Himanshu Rathore says:

    What is the biggest reason you think people fall for them and get trapped :: reason is simple, their are no free lunches but everyone wants one.. everyone wants to get rich fortnight…

    1. Thanks for sharing your views 🙂 .

      1. Himanshu Rathore says:

        Your welcome… I am still waiting for your comment on following link..

          1. Himanshu Rathore says:

            Thanks 🙂

  17. Satish Kumar says:

    Hi Manish,
    May be the point we are missing here is that a Multi Level Marketing is different from Direct selling. Any company selling directly to the customer, removing all the supply chain management commissions behind, will be governed by Indian direct selling association, (within India) and world federation for direct selling association, . There are many companies like Avon Cosmetics, Amway, Oriflame, Herbalife, Tupperware etc.. registered under these federations. These companies work under the ethics defined by the IDSA or WFDSA and are very harsh on the people who dont adhere to these ethics. Many people reading this article will agree that the quality of the products they produce are amongst the best in the world. Many people are under the impression that these companies are similar to the other ponzi schemes. A very good article differentiating both is

    Tip :- If any company says that you earn money just because you make other people join the business, then please dont go near to that. If any company says that you earn money because you sell the products, you need to think of it as a business opportunity.

    Note:- I am NOT a member of any MLM or Direct Selling company.

    1. Umesh says:

      Very good perspective.

    2. Satish

      Thanks for that point . Yes agree that there are companies which are not ponzi schemes . The article is just referring to the structure under which they operate. If the money one is making is coming from the other guy fees for joining, then over a very long term, the people at the bottom of the tree will struggle fining more people.

      1. Satish, I have also added those points you mentioned in the article for more clarity , thanks for your contribution .

      2. Ritz says:


        But its the same situation in every business. People who get early into it make money and bottom level always struggles. I am not in favour of MLM or Pyramid, but every business saturates at one point or another. So how MLM is different from that.

        1. Yes, but we are talking about MLM structure onmly .

  18. Yusuf says:


    You forgot to include the social cost of MLM. Suppose a person joins a MLM then people around him start ignoring him like the plague. The only thing that ever comes out of the person’s mouth is a sales pitch. Very irritating.

    Another aspect is that suppose he makes 10 members and the scheme goes under (most likely scenario). In that case, he loses face with those 1o members. So for me, the cost of MLM is much higher than the profits.

    PS: never got cheated in MLM but am a victim of the “teak tree” scam

    1. Yusuf

      Thats a nice point actually. A person once into MLM then starts looking at people only as targets and not humans !

      1. Dinesh Jain says:

        Hi Manish,

        You said “A person once into MLM then starts looking at people only as targets and not humans”. That’s the PERCEPTION of the people based on their personal experience. But the problem with the human being is that they consider their personal experience as a REALITY whereas this is a PERCEPTION only.

        There are always two sides of the same coin. Life and Death, Sun and moon, thorn and roses, childhood and adulthood, successful and unsuccessful, win and failure, happiness and sadness. It’s a foolishness to give opinion looking at only one side of the coin.

        People don’t know what they don’t know and they are not trying to know what they don’t know.

        1. Yes, thats true Dinesh. Agree with you .

          Request you to give your opinion on this subject .

          1. Dinesh Jain says:

            Hi Manish,

            In case you get time, go through these books..

            “the business of the 21st century” by robert kiyosaki
            “Copy cat marketing” by burke hedges..

            These books will give a proper clarity on direct selling/mlm

            1. Ok sure .. will check them

  19. Amit Patel says:

    Really an awesome article. I faced and met lots of MLM (agents) people in India, USA and Australia too. Most people I met were Indians. I attended first hall meeting (amway/bww) in 1995-96 after school. I found various types advertisement in Newspaper in 95, group discussion in schools, colleges and hostels in 98-99, neighbor kitty parties (plastic items), email/website chains in 2000-2003, skype and google hangout for business model understanding in 2011-2012. Many Indians in Australia were students and joined Amway. Amway ads in famous Australian newspapers have Indian faces and names 🙂 (at least not for racism attacks)
    Such MLM requires few good skills. If you have these skills then start your OWN Business (not MLM). Such schemes exist for plastic items, insurance, FMCG products, websites, books and so on.

    1. Thanks for sharing your experience Amit .

    1. Manish

      Thanks for that link. You might be talking about some legal and ethical business. In this article , we have tried to explain about those MLM businesses which just wants to extract money out of new joinees and pass on to the top . Read the disclaimer at the end of the article.

      Can you explain more about your business model .

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