When MLM Becomes a Scam: Pyramid Schemes

 

Pyramid marketing is a dishonest business model in which the objective is not to sell a product or service but to accumulate profits in a parasitic way. This goal is achieved by recruiting as many people as possible, with the promise of large and quick profits. 

This is an unsustainable system, as recruiting other collaborators becomes quickly impossible and those at the bottom of the pyramid have no benefit. This is why this practice is considered formally illegal in many countries of the world.

How Does A Pyramid Scheme Work?

Pyramid marketing is structured similarly to multilevel marketing, but in this case, the only thing that matters is getting as many people into the business as possible. Through skillful manipulative techniques, newcomers face a high upfront cost in the form of an entry fee or the purchase of product stock. They will need help to recover their initial expenses and try to stay afloat by recruiting staff, but this system will only last for a while.  

Those at the top of the ladder will continue to earn disproportionate commissions. In contrast, disappointed and exasperated sellers at the bottom of the ladder will drop out and be replaced by others. While in a normal multilevel system, a "low level" member can earn as much as the one at the top, in the pyramid, this is impossible. In this context, it is common that the average duration of a pyramid scheme is two years. 

How Do You Know If You Are Dealing With A Pyramid Scheme?

As mentioned above, pyramid schemes have the desire to recruit new distributors among their distinguishing features. Indeed, this is what each seller's earnings come from and not from the products he sells. As for the company, it earns relative to the inventory of products purchased by each new salesperson recruited. But don't worry: pyramid schemes can be detected in time. 

Here are some useful clues to know if you are dealing with a dishonest company.   

 

• The product does not exist or is sold at a price too high to be competitive. 
• The company needs to provide more information about itself and, in any case, not before joining (on payment of a substantial fee). 
• Information on the compensation plan and legal aspects could be more specific and consistent. 
• Salespeople exert psychological pressure to push for purchases during meetings. 
• The company's profit comes almost entirely from dues from new distributors. 
• It is repeated many times that the company acts within the law.   

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