A pyramid scheme looks very similar to multilevel marketing. It also expands the business by recruiting several layers of members, which form a pyramid system. However, pyramid schemes are illegal scams, while multilevel marketing is legitimate.

The major difference is that the primary goal of a multilevel marketing company is to sell actual products or services to its customers. Conversely, a pyramid scheme does not supply any real products or investments.

Participants are convinced that the company owns a valuable product or investment project. They only receive “promised payments” by recruiting downline participants. The more downline participants are recruited, the more people are dragged into the fraudulent activity.

Multilevel marketing distributors, especially the lower-tier ones, usually make small amounts of money. Participants deceived by a pyramid scheme typically lose all the money they invested in or paid as “membership fees.”

It is essential to identify whether the business model is legitimate multilevel marketing or the fraudulent pyramid scheme before joining. If a business places a greater focus on recruitment rather than sales of products, the business is very likely a pyramid scheme.