pyramid schemes

Direct selling vs Illegal schemes: Know the difference

Fraudulent activities are truly common these days; the number is high in business. Thousands of people in India fall for such frauds, young and older people alike. The worst part is that these activities cause trouble in honest businesses too. That’s what is happening with the direct selling business. Many people misinterpret this legit business for fraudulent schemes. In many cases, such activities tend to claim as direct selling. However, there are some fundamental differences between direct selling and false schemes.

This article is motivated to share awareness about why direct selling have nothing to do with fraud schemes or businesses.

Direct selling vs pyramid schemes

First and foremost, to register and join a direct selling business, the interested people should buy the company’s product. So, there’s a clear exchange between the company and the direct seller. The distributor/seller is receiving products worth the money they spend. Then the direct seller can retail these products and make a reasonable profit. In other words, direct selling is a retail business carried out by a direct seller, who acts as an intermediary between the company and customers. It is a small-scale business plan with a good possibility of making a profit. What makes it so profitable is that to enter direct selling, one does not need to spend a lot of money. The less the cost, the higher the revenue is.

On the other hand, a pyramid scheme is a chain of people added under each new joiner. To join this chain, everybody has to pay a certain amount. However, in return for this amount, the people in this chain won’t receive anything. Unlike direct selling, it is not an exchange, so no products or return is received. But, in a pyramid scheme, a profit is being offered to all the joiners. However, what happens is that either the chain will break at some point because of no opportunity to grow. Or, the company would stop working abruptly, cheating the new joiners and only benefiting the owners and the first group of people who joined.

Direct selling vs get-rich-quick schemes

Plans, hard work, business skills, knowledge and more are important elements for the success of a business. In direct selling, strong marketing is required for product sales. To boost performance, one should implement new ideas and effective management. Similar to any other business, direct selling is hard work. Plan, skills and hard work determine success and growth. Direct selling differs from traditional business because it only requires low capital to enter the business. Neither a physical store nor advertisement, transportation or any such cost is needed.

However, as the name suggests, get-rich-quick schemes are fraud schemes that offer a profit from money one spends. There will be no legitimate businesses offering success or profit without hard work. It takes a lot of effort and time to succeed in direct selling and traditional business. If anybody comes with offers of easy money-making, then that’s is not direct selling. A direct seller will get paid reasonably based on product sales and network growth.

Direct selling vs Ponzi scheme

Investment schemes are different from direct selling. In direct selling, a person who wishes to join is not making an investment that would pay twice or more after a certain period. But it’s a business prospect; as I mentioned above, hard work is necessary to get the prospect into real success.

On the other hand, the Ponzi scheme is not a retail business like direct selling. It does not provide a product in return for the money one spends. Moreover, an investment or Ponzi scheme offers a massive profit from an investment. It then disappears from the people or benefits only people who joined in the beginning stages. It is very similar to a pyramid scheme, both of which are banned in India.

What exactly is direct selling?

Direct selling is a retail business with great opportunities in business. It best suits people passionate about entrepreneurship and willing to work hard. A direct seller will work as an intermediary between the customer and the company. A person can earn a reasonable income from this retail business. As the cost is less due to no requirement of a physical store or any such costs, profit is higher. Anybody can be a direct seller; it is the easiest way to enter the business world. Plus, direct selling is a great way to earn an extra income because a person can manage it with a regular job.

There are millions of direct sellers in India. Direct selling companies work under the Direct Selling Guidelines, 2016, issued by the Ministry of Consumer Affairs. The legally approved business is registered and operates under the Company Act, 1956. This business has been active in India for over five decades. In addition, one attractive feature of the business is the majority of direct sellers in India are women.

Learning about the fraudulent schemes would help one be indifferent and make the right choice. So, avoid fraud schemes and choose the best direct selling in India.

What is a direct selling business?

Direct selling is a retail business anybody can do by registering with an approved direct sales company. A direct seller is a person who works as an intermediary between the customer and the company.

Direct selling business is primarily carried out through face-to-face marketing. Then, more people started using telephonic marketing along with direct marketing. Nowadays, the direct selling business is flourishing through social media platforms.

One very attractive feature of direct sales is that it does not require a physical store or shop to carry out the business. Unlike traditional business, there is no conventional way on how one should do business. The direct seller can choose the mode of marketing.

In addition, direct selling also gave the opportunity to develop a network of passionate business people. It makes the business a teamwork and much more than just a retail business.

Is Direct Selling legal in India?

All direct selling companies in India should be registered under the Company Act, 1956. The Government approves the business of India. It operates based on the Direct Selling Guideline, 2016 by the Ministry of Consumer Affairs.

Direct selling is a credible and legally approved business in India. Hundreds of companies work in different parts of the country. Millions of independent representatives are registered with these companies who are carrying out a successful business.

Also, most direct sellers are women, making it one of the empowering industries in India. The industry is very welcoming and safe for women to run businesses.

Is direct selling and pyramid scheme the same?

The direct sales business is often misinterpreted as a pyramid scheme. This is because many pyramid schemes use the name of direct sales to run their fraudulent activities. The misunderstanding is also because of the lack of knowledge about direct selling.

A pyramid scheme is the chain of people added to the businesses by offering a great profit. But the scheme is a fraud because, at some point, the chain will end or stop growing and end up profiting only the first set of people. Everyone else who joined the chain in the later periods will lose the money they spend on it. It is a fraudulent way to trick people into voluntarily giving their money.

On the other hand, direct selling is a networking business. In return of the money a person spends on direct selling, they receive the company products, which they can retail to make a profit. In a pyramid scheme, no products will given in return for the money one spend.

Is direct selling an investment scheme?

Ponzi Scheme is an investment scheme, offering people high profit for their investments within a particular period. The return or profit offered in the Ponzi scheme attracts many people into investing their money. Like in the case of a pyramid scheme, in these kinds of fraudulent investments, only the first set of people joining the business will profit. Everyone else will be losing their investment. The Ponzi scheme is banned in India. It is important to be careful with every investment decision one makes.

What is a get-rich-quick scheme, and why direct sales are not one of them?

The many business models that present themselves as an easy money-making method is a get-rich-quick scheme. As the name suggests, people will be offered a massive profit within a very little time. However, direct selling is a business that requires a well-crafted plan and hard work.

The advantages of direct selling?

One can start a direct sales business by buying the company’s product.
Cost-effective with no advertisement cost and low transportation cost. Also, there’s no need for a massive capital and a physical store or shop.
Anybody can do the business; no professional training is required. Business skills can be developed while working as a direct seller.
Opportunity for personal and professional development.
Opportunity for growth.
Women empowerment and diversity inclusion are top priorities.
Great compensation plan and reward for hard work.
It is an excellent source of extra income.
Can do the business through different methods, like direct, online or telephonic marketing.

The future of the direct sales industry?

The direct selling industry is expected to be one of the leading businesses in India by the year 2025. The number of direct sellers in the country is anticipated to increase by 18 million within five years. The scope and future of direct selling are unending. It is a great way to step into business without spending a huge amount of capital and worrying about investments.

How to find the best direct selling?

As we discussed earlier, many fraudulent activities in India are disguised as direct selling. If one pays enough attention, one can easily note the differences.

Check the quality of products the companies sell. Only a good company will provide high-quality products known for innovation and utility.
The popularity of the company can be one of the criteria. See if there’s information available on the direct selling company online and through other mediums.
The company will be registered and approved by the Government.
The direct sellers of the company will present both the ups and downs of the business, not as an easy way to make money.
There will be plenty of opportunities to grow.

Direct selling is a great way to get a kick-start in business. Unlike any other form of business, it is accessible to anybody passionate and willing to work hard.

MLM, Direct Selling and Pyramid Scheme

Multi-Level Marketing, Direct Selling, and Pyramid Scheme are confusing terms for most of the people. Though Direct Selling and MLM have some similarities, the Pyramid Scheme is different from them.

How Pyramid Scheme is different from the other two?

If you purchase a product from a company then, it is not a pyramid scheme. Pyramid Schemes never give you a product in exchange for your money. The products you purchase from direct selling companies or MLM companies are sometimes overpriced but, you can’t call them a pyramid scheme.

Pyramid schemes ask you to invest money and recruit others who can also invest money. The only way to earn money through pyramid schemes is by recruiting others and earning commission on their sales. There is no product or service involved in the scheme.

Direct sales: As the name suggests, direct selling is the most direct way of business. You must sell products on commission in the direct sales business. Sales occur in the non-retail environment in direct selling business.

Multi-Level Marketing: MLM also works like direct selling initially but, you have to recruit your downline and you can make money by their profit as well. MLM is a more promising business if you want to make more profit.

What is the similarity and difference between Direct Selling and MLM companies?

In both types of companies (direct selling and MLM), you earn profit by selling products. In MLM you can earn profit from your sales as well as from the sales of your downline while in direct sales you can earn only by your sales.

Direct selling and MLM in today’s context

Nowadays, most of the companies are using the MLM model instead of the direct selling model. Most of the direct selling companies are using MLM as well as a direct selling model at the same time. Anyone can register to a direct selling company and can enter the MLM model by recruiting his downline.