There are few things to keep in mind while differentiating between a ponzi scheme and a direct selling company. As per Wikipedia, the definition is given below. Rest in detail, you can read the points to understand more about ponzi schemes and direct selling companies.
As per Wikipedia, A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.
- In a Direct selling company, the distributor is given commission, when the services or the products taken by the distributor for personal use or when it is sold to others.
- In a ponzi scheme, the earning to the network depends on recruitment of new people into the network.
- In a genuine Direct selling company, the products or the services of the company are already established in the market place.
- In a ponzi scheme, most of the times, the start-up cost to join is very low and the products or the services they offer are not recognized in the market place, basically they are cheap. It means, the person who is not connected to the company would not buy the product at the rate they are being sold.
- In a genuine Direct Selling company, the entry to get started and the cost of starting to sell for a certain market for the first time is quite low.
- In a genuine direct selling company, the option to exit are always available.
- In a ponzi scheme, they do not offer exit option.
- In a direct selling company, a newly signed up person can earn even more than the person who had actually joined above and/or earlier than him.
- In a ponzi scheme, the person who joined as an early bird makes more money than the person who joins after him.
- In a direct selling company, the focus is on sales of products/services and therefore they emphasize on good amount of product training.
- In a ponzi scheme, the focus is on meetings and recruiting of new participants into the system..
- In a direct selling company, the business model is based on selling of the products/services to the right consumer and rewarding the people, who top the list.
- In most ponzi Scheme, there are no functions, and no real trading occurs. The cash from new members is distributed among the ones, who started earlier. To make it simple, its rotation of money and nothing else. Currently, most ponzi schemes are involved with collection and distribution of money from external sources like Foreign exchange trading, Stock exchange, Surveys, Blogging, Time shares, Emu farming, Goat farming, buying gold or land, etc.
- In a direct selling company, the compensation plan which pay (from the margin assigned per product for distribution to the network) their distributors on the basis of products or services sold, not on recruiting.
- In a ponzi scheme, the money taken from people against guarantee of a high returns in the future. Their business plan is unsustainable, considering that it assures returns which fully rely on getting financial investments from new members.