Definition of MLM and Pyramid schemes
Multilevel marketing is the technique used for the distribution of products or services through registered members and providing commission for alternate product or service sale under the member.
Pyramid scheme is a unstable business that takes in the money try to sell a product or service that doesn't exist. some cases it's start with free sign up and then asking money for the non-real product or service.
Setup
MLM is designed to advertise a product or service to maximum number of distributors and to increase the sales exponentially.The promoters or distributors get paid for the sale of and compensation for every sale takes place under their recruitment's. mlm plans is designed such that the commission is paid to the members at multiple levels when a single and commission depends on the total volume of sales generated.
In Pyramid scheme ,money is charged for recruiting new people to the scheme and no actual product or service sold.The initial promoters are the only on;y people who gains the profit.The system collapses when no new members can be recruited and then most of the member's except the initial promoters losses their money.
Compensation Plans and Models
MLM Compensation Plans
MLM has various types of compensation plans based on the commission distributed among the down line member's. The plans are Binary mlm plan ,Unilevel plan, Matrix mlm plan, stair step break plan and hybrid plans.
The Binary MLM Plan - Binary plan only allows only two members in the front line. So at any level, only two distributors are required to complete the compensation plan.
Unilevel Plan - The Unilevel Plan is the simplest one. The design is such that a person can recruit unlimited “front line” distributors for the product. The front-line distributors are encouraged to recruit more distributors, and thus the cycle continues.
Stair step Breakaway Plan -In Stair step Breakaway Plan, a group leader is assigned with multiple recruits under them. The goal is to achieve as set of volume of sales in a set time.
Matrix Plan - Matrix Plan is similar to the binary type, except that a limited number of distributors can be sponsored at any level, and once that preset number is reached, another matrix can be started.
Hybrid Plan - Hybrid Plan , as the name suggests, combine any of the above mentioned compensation plans.
Pyramid scheme compensation models
The models include in the Pyramid Scheme include 8-ball model and Matrix scheme.
The 8-ball model-
In This model each person has to recruit two people into the scheme. These people have to pay a sum to enter the scheme called a “gift sum”. The captain or the person at the top receives the gift money from 8 people before exiting the scheme.
Matrix scheme -
Matrix scheme is also a pyramid scheme except that people are required to pay for a product in advance and wait in a queue in order to enter the scheme. When the recruited person further recruits a certain number of people, he or she receives a product like a camcorder or television that is worth much less than the money paid, and exits the scheme.