Ponzi vs Network Marketing: What makes Ponzi schemes more attractive than Network Marketing

 With the Covid-19 pandemic and the lockdown, everyone fancied to do business while at home. This made online businesses thrive more than ever in this generation.

Most popular amongst these numerous online based businesses springing up with the lockdown was network based businesses. Ponzi schemes and Network Marketing; which have been mistaken for each other. Most people would even argue that they are the same thing.

With this post, I am going to explain, as simply as possible the difference between both 'network' based businesses. 

Let's start with Ponzi...

Ponzi Schemes may have originated from a periodic monetary contributions often organised amongst workersw unions and staff members.

In this case, a monetary contribution of specific amount of money is made my every member of the group which is summed up at the end of a period agreed upon, and handed to one member of the group to do a project or take care of a weighty bill.

In a Ponzi scheme, members of the network are grouped into small groups and each makes contributions of specific amounts of money. When every one has made their contributions, a cycle is completed. And the person whose turn it is gets the money in multiples of the amount of money he had contributed.  And another cycle is started, with everyone contributing as before, another person gets the lump this time. And so so on...

For a Ponzi, you 'pay' an agreed amount of money, then invite a number of other people who would pay the same amount has you have. After which you get your returns in MULTIPLES of your initial payment.

Ponzi schemes are very lucrative and can effectively grow your initial investment capital into several multiples of your initial investment. But it can be a very risky venture, espacially for late comers. This is because waiting for their turn will require a lot of patience and they have to trust the ones who have been paid to reinvest. If they don't reinvest or new members don't join the group, they may never get anything after the cycle period.

Another sensitive characteristic of a Ponzi scheme is dishonesty and mistrust.

A lot of companies and individuals who organise Ponzi schemes, especially online, are very fraudulent and dishonest with their mission.

Most of these people just want to make money out of people.

For instance, a friend shared a business opportunity he called network marketing to me recently. It is ponzi.

She explained that you need to pay ₦5,000 to join the network and then after you've gotten 10 new members under you, you will be paid ₦10,000 in form of food items.

And when your new 5 introduces new 5 each, making 25 new people paying ₦5,000, you get another ₦10,000  worth of foodfwhile the earlier 5 get their own ₦10,000 worth of food each. Then the third stage, when the 25 people bring in 5 each, making 125 new members, you get ₦25,000 worth of food and the others get their pay as before.

Let's analyse.

Let's assume you're the very first member of the network to join the company directly with the owners. 

You pay ₦5,000. This money goes into the owners pocket.

Then, you bring 5 people to pay ₦5,000 each. That is ₦25,000. And you get back ₦10,000. The balance ₦15,000 goes to the owner. New 25 people join from your 5, they pay a total of ₦125,000. Your 5 gets their ₦10,000, you get your ₦10,000. Total of ₦50,000+₦10,000 = ₦60,000. Out of ₦125,000. Balance ₦65,000 goes to owner yet again. And so on... 

This looks very fraudulent, if you ask me because eventually when one cannot introduce 5 new people, his initial investment is gone.

This is why most countries declare these schemes illegal.

Now, let's look at Network Marketing...

Network Marketing

Network Marketing is a system of marketing (facilitating sales) of a product to prospective customers.

Network marketers are paid for effecting sales and recruiting others like them to effect sales too.

So, you're paid based on the volume of sales a company makes through your network. You're paid, systematically, a defined percentage of the volume of products. Each company has their own compensation plan (comp plan).

For instance, in Longrich, you join by making a first purchase. There is not fixed price of entry. Any amount of money paid to a network marketing company is for a product. It is assumed that you made a purchase. You get back your money in form of the company's product.

So, with Longrich, you make your first purchase to make up the points for the entry level you want (all products have points, and points accumulate). You introduce three new people who make a purchase of their choice like you. You're paid commissions from those purchases they have made. There are various routine calculations done to arrive at the fraction of their purchase you earn. You can check other blog posts for details.

The main difference between a Ponzi scheme and a network marketing system is that while Ponzi pays you in multiples of your investment (eg x2, x3, x5 or even x100 of your initial investment), while network marketing pays a certain fraction or percentage of the purchases made by the people you introduced (eg 8%, 10%, 12%, etc).

This is what makes Ponzi more attractive than network marketing.

People get multiples, their money doubles or triples or even more. Where as, with network marketing, they get only small percentage of their networks performance (this can run into millions for a big network).

People do not need to sell or make unnecessary purchase with Ponzi. But they have to do those with network marketing.

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