What's the Difference Between Network Marketing and a Pyramid Scheme?
This reflection came from a comment I receive surprisingly often from people who are interested in a Kangen water machine or other products I've shared over my time as a network marketer:
"I like it, but I've heard it's one of those pyramid schemes."
I've heard this many times.
And almost every time, when I ask what they actually mean by "pyramid scheme," the conversation ends there: seen (or whatever the in-person equivalent of that is…).
The truth is, there's a lot of confusion around this word. And honestly, I understand why.
"Pyramid scheme" carries a bad reputation because some people have abused similar business models, while actual scams have led many people to group everything under the same label.
Because of that, before making statements like these, I think it's important to understand the difference between network marketing and a pyramid scheme, because they are two completely different things.
What Is a Pyramid Scheme?
A pyramid scheme is a fraudulent business model that depends on continuously recruiting new participants instead of creating value through the sale of a genuine product or service.
It is generally characterized by:
It is illegal in many countries.
There is no real product (or the product is simply an excuse).
Income comes primarily from recruiting new people.
What Is Network Marketing?
Network marketing, also known as direct selling or multi-level marketing (MLM), is a legitimate business model based on recommending a real product or service.
It is generally characterized by:
It operates within the law.
It is based on recommending a genuine product together with a business opportunity.
Income comes from direct and indirect sales commissions, just like in many other businesses.
Up to this point, I think the difference is fairly clear and easy to find with a simple Google search.
But there's another part of this conversation that, to me, is far more interesting—and one that is rarely talked about.
Pyramid Structures Are More Common Than We Think
Hierarchical structures exist in almost every company we know and in many of the places where we've worked as employees or freelancers.
Network marketing follows a similar structure, with one important difference: it is possible to earn more than the people above you—or alongside you.
How Is the Value of a Sale Distributed?
Who Makes Money When You Buy a Product?
Every business creates a chain of commissions and payments.
When you buy something from a supermarket or a store, part of the money stays with the retailer, while another part goes to suppliers.
The company that sells or manufactures the product also pays for advertising—whether through its own marketing team or external agencies. And if it doesn't manufacture the product itself, it pays the producer, who in turn pays suppliers, employees, and everyone else involved.
So far, so good.
Businesses create jobs and distribute revenue among everyone involved.
The part that doesn't feel quite as fair to me is that this value isn't always distributed evenly. The people at the top usually earn significantly more, while those doing much of the day-to-day work often have fewer opportunities to grow.
In many companies, career progression depends on someone above you leaving their position after many years—and even then, promotions don't always come with substantially better pay or working conditions.
Every business has its own structure, and some are certainly better than others. My point is simply that every sale involves money being distributed across many different participants.
That's how commerce normally works.
So What Actually Changes?
Most network marketing companies—or at least the ones I've worked with—follow this same principle.
The difference is that money which would normally go to retail stores, advertising, intermediaries, and other distribution costs is instead shared with independent distributors (or affiliates).
And those distributors are often people with non or limited incomes, looking for a second source of income, or parents and caregivers trying to balance family responsibilities with a traditional job.
This model can provide an extra income, a full-time income, or even the opportunity to build something of your own without having to start a business entirely from scratch and take on all the investment, risk, and complexity that usually comes with it.
And if they choose to teach others how to do the same, that opportunity can extend to them as well. ♺
Other Values That Often Go Unnoticed
Beyond the financial side, this kind of business model (and, in my experience, any kind of entrepreneurship) also pushes you to develop certain skills that will be useful in many other areas of your life and future projects.
Many organizations offer free training and mentorship to their distributors.
You learn about sales, communication, leadership, financial education, personal development, personal branding, and much more. Skills that, if you decided to learn them on your own, would probably require a significant investment of both time and money.
And even if one day you decided to take a completely different path, everything you've learned would stay with you.
On top of that, these businesses are usually built around communities (or teams) of people who share similar values and interests. At least for me, that's made the journey much more enjoyable because entrepreneurship can be quite lonely.
Having people to learn from, share challenges with, and celebrate wins alongside is also part of the value this model offers.
My Perspective as a Consumer
Over the years, I've become much more intentional about where I spend my money. And whenever possible, I pay attention not only to the product I'm buying, but also to the company behind it.
How does it treat its employees?
How does it work with its suppliers?
How does it distribute the value it creates?
Because very often, the people at the very beginning of the supply chain—the ones growing, producing, or sourcing the raw materials—receive only a tiny fraction of the final value of a product, while large intermediaries keep most of the margin.
I find it interesting that many people criticize the idea of an individual earning a commission for recommending a product, yet rarely question all the other commissions and intermediaries that exist throughout virtually every commercial supply chain.
The companies I've chosen to work with also prioritize the quality of their products, their relationships with employees, distributors, suppliers—and even the planet (!)—over producing more and more or maximizing profit at any cost.
In my own experience, these products are part of everyday life and genuinely focused on wellbeing. Because of that, it also makes sense to me that recommendations come from personal use and real experience, rather than simply from a sales strategy.
I'm not saying every company works this way, or that this is the only business model that makes sense.
Fortunately, more and more companies—both traditional businesses and direct-selling companies—are choosing to operate in a much more conscious way.
That's why, personally, I feel good about supporting businesses like these and buying from people who are building something for themselves.
In the end, that's really the reflection I wanted to share.
I simply believe it would do us good to keep an open mind, to understand how a business model actually works before judging it based solely on its label—or on someone else's negative experience
Keep Exploring
I'm currently working on more articles around this topic. Some of the next ones will be:
Why Are Network Marketing Products More Expensive?
Is a Kangen Water Machine Worth It?
How Does Affiliate Marketing Work?
What Is Molecular Hydrogen and Why Is It Receiving So Much Scientific Attention?
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Frequently Asked Questions
What's the difference between a pyramid scheme and network marketing?
A pyramid scheme is an illegal and fraudulent system that relies solely on recruiting new participants without offering a genuine product or service. Network marketing (also known as MLM or direct selling) is a legal business model based on selling and recommending real products, where commissions come from those sales.
Do traditional companies also have a pyramid structure?
Most traditional companies are organized hierarchically, with executives, managers, and employees. In that sense, the organizational structure often resembles a pyramid. The key difference is that in network marketing, your income isn't limited by your position within the hierarchy. Instead, it depends on the value you create through product sales and, if you choose, by helping others build their own business.
Is network marketing legal?
Yes. Legitimate network marketing companies operate legally and generate revenue through the sale of real products or services. Pyramid schemes, on the other hand, are illegal in many countries because they rely primarily on recruiting new participants rather than selling genuine products.
How is money distributed in network marketing compared to traditional retail?
In a traditional business, part of the price you pay goes toward retailers, advertising, distributors, and other intermediaries. In many network marketing companies, some of those costs are redirected to independent distributors who recommend the products and support customers directly.
Do all network marketing companies work the same way?
No. Just like any other industry, network marketing companies vary greatly in their products, values, compensation plans, and business practices. That's why it's important to evaluate each company individually instead of judging the entire business model based on a few examples. If you're curious about the company I work with, you can learn more about Enagic and my experience here.
What are the benefits of network marketing beyond making money?
Beyond the financial opportunity, many organizations provide free training in sales, communication, leadership, financial education, personal branding, and personal development. They also tend to foster communities where people support one another, share knowledge, and grow together—something that can make entrepreneurship feel far less lonely.
Is Enagic or the Kangen Water business a pyramid scheme?
No. Enagic is a Japanese manufacturing company that has been selling water ionizers for decades through a direct selling business model. Customers purchase a real product, and distributors earn commissions from product sales—not simply from recruiting new people into the business.
Why buy from an independent distributor?
When you buy from an independent distributor, you're usually buying from someone who actually uses the product and can guide you through the process. In many cases, you're also supporting a person who is building their own business rather than a traditional retail chain. Personally, that's something I increasingly value when deciding where to spend my money.
How This Looks in Practice
In this article I wanted to talk about the business model itself.
If you're curious about the company I work with and why I decided to build a business this way, I've put together a page where I explain my experience in much more detail.
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