After reading the following information, you will recognize the differences between a pyramid scheme and a legitimate network marketing opportunity.

Are you confused about the difference between network marketing and a pyramid scheme? Have you been burned by joining what you thought was a reputable business only to find out it was a scam? How do you tell if it's a legitimate business opportunity or just another scam?

If the direct focus of a so-called "company" is to make a quick buck or to get rich quick, most likely, it is a scam. These types of schemes prey on the ignorance of people for a quick profit.

First, let me tell you that Network Marketing is 100% legal and pyramid schemes are 100% illegal.

what is a pyramid scheme?

You would pay some huge fee to join and hope to recruit others for more than what you had originally invested. The most obvious ones do not even sell a product, which should send up a huge red flag.

The start up cost for a valid network marketing opportunity is generally low. If a company is asking for thousands of dollars to start up, you should not invest your money in them. Also, valid network marketing opportunities will offer a valuable product at a reasonable price.

Some may try to fool you by offering some type of invaluable product or service. This is how they disguise themselves as network marketing (multi-level marketing, mlm).

These programs may require you to purchase a large quantity of the product to store as inventory. Since the product has no value, you get stuck with it because no one wants it.

Oftentimes the product offered by the scheme is not only invaluable, but also grossly overpriced. Real network marketing opportunities will have competitively priced products.

You should have skepticism when a company makes you purchase large quantities of inventory. Make sure to do your research before joining. You will want to check and see if they offer an inventory buy back program. If not, RUN!

Another red flag is having time requirements on product sales and the number of recruitments. Pyramid schemes will often require that you sell a specific amount of product before you can make any commissions.

Also, some may require that you recruit a certain number of individuals before you make commission on product sales and/or recruitment.

A real network marketing company will not have time requirements on product sales or recruitment. Also, with a real network marketing company, you will make money off of your own product sales, as well as a percentage of the sales of your recruits.

Most importantly, perform research on how the company is turning profits. If they make more money from recruits than from product sales, then you are most likely dealing with a pyramid scheme.

The primary focus of a network marketing company is product sales. The company is built around a specific product, and they are using network marketing to distribute their product to the marketplace.

The more people they have selling their product, the more products they will sell. Network marketing cuts out the middle men generally used in retail selling.

In 1979, the Federal Trade Commission (FTC) made a decision that gives the distinction between an illegal pyramid scheme and a legal network marketing company. The FTC defined what a scam is by simply asking this question, "Can the last person still make money?"

In most illegal pyramid schemes, the new recruit pays a substantial amount of money to join the program. They become a distributor of a product or service, but solely make money on the number of people they recruit.

The more people you recruit into the program, the higher you move up in the pyramid, the more money you can make. Another dead give away is the amount of money it takes to join the program.

They often charge a large initial investment to join their program. These large investment amounts are hidden in the start up costs.

Also, many times if a product is offered, these large investments are disguised as inventory charges. The reason that they charge so much money on the "front end" is because there isn't a "back end" profit.

Or a company may have you buy training materials such as CD's / DVD’s at highly inflated costs. They will sell you literature that would normally cost $20-$40 for thousands of dollars. When asked why it costs so much, their response is that the "Information is Priceless!"

Listen, the point of the pyramid is that the person at the top makes all the money from all the people at the bottom. Kind of sounds like the current workforce for corporate America- they make all the big bucks for the few at the top, but I have digressed.

At no time during the scheme will anyone have the potential to make the amount of money as the originators of the pyramid scheme. At some point, the pyramid scheme will collapse when the lower level recruiters fail to bring in new participants to support the top of the pyramid.

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