What is really just a pyramid scheme

Here are some of my investigation points to make sure I avoid getting sucked into just another pyramid scheme:

1. I get a cut of the member registration or ongoing fees. Pyramid scheme for sure
2. The products are over priced... Pyramid scheme
3. I have to buy a minimum amount of product... Pyramid scheme
4. They only have one or two products lines, and unique to their business.... Probably a pyramid scheme.
5. They charge membership fees... Quite possibily a pyramid scheme.

And really I do not care if I can get in at the top. Pyramid schemes are illegal for a reason, and that reaons is that they go against anything that is decent, ethical and socially responsible. And since I live my life considering all these things, I am unwilling to profit from this type of abuse and so simply will not participate no matter the chances of wealth.

Cheers!!

@NetMecca Yes all programs deserve much research. They are supposed to help you not hurt and take advantage of you.

[Post edited. Please stop quoting entire post when directly replying to a message - Admin]

@NetMecca... just to clarify some of your points, here is the difference between legit Network Marketing aka MLM company and pyramid scheme. In Pyramid scheme there is no product or service. People make money based ONLY on enrollment of other people. So to clarify your points:

1. I get a cut of the member registration or ongoing fees. Pyramid scheme for sure - YES, that is definitely a pyramid scheme.
2. The products are over priced... Pyramid scheme - overpriced comparing to what???... example: you go to grocery store and you see "Garden of Eatin'" tortilla chips for $1.99 a bag and you go to Whole Foods and the same size and brand of tortilla chips costs $3.49 a bag. That is OVERPRICED product. When it comes to products or services offered by Network Marketing company you can not justify the product on the price alone. Example: for someone who really cares about nutritions and supplements they will rather spend $40 on the bottle of vitamins from Network Marketing company knowing that they are getting better quality of product rather than buying vitamins from Walmart. If someone doesn't care about nutritions and supplements they will always see $40 bottle of Vitamins as overpriced.
3. I have to buy a minimum amount of product... Pyramid scheme - not necessarily. Every Network Marketing company requires their distributors to a minimum order of products or services every 4 cycles (once a month). This type of activity qualifies such person to earn commissions. This is normal in MLM company as it is normal with every other business. Example: someone opens a liquor store and buys a wine only one time. Does not repeat the order the following month (or week)... will the owner of the store make money from wine drinkers??? Distributor of MLM company has to maintain inventory of products for personal consumption or to re-sell it to his clients. Depending on the demand of the product that order can be placed once a month or once a week. Most Network Marketing companies do not require monthly autoship but they do require for the distributor being active once every 4 cycles for a minimum product. Otherwise there would be no sales volume in the company and it would collapse. Same in traditional business. If vendor offers product to a retailer they require the retailer to keep ordering from them every once in a while (every month or week or whatever) by doing so the retailer gets better price and can get better margin. Of course the retailer doesn't have to use the same vendor but they need some VENDOR to be in business. MLM company doesn't tell you that YOU HAVE TO buy their product every 4 cycles but by doing so you get petter price and qualify for commissions. Its simple business. If MLM company tells you that you do not need to buy their product every month and all you have to do just sign up people and you will get a cut - THAT IS A PYRAMID SCHEME.
4. They only have one or two products lines, and unique to their business.... Probably a pyramid scheme. - again, not true. Some Network Marketing companies especially start up companies do offer only one or two lines of products. Example: some "juice companies" before they came up with 6-7 types of products they only had one line of products offering two types of juices. And as they build their business on those products they do develop more products within their genre of products. If there is a Health and Wellness MLM company they might start with supplements, or weight loss products and after a while they add more products of Health and Wellness... It is very rerely seen Health and Wellness company offering internet services. Also it is not a smart business approach offering 7 different products at the start of a company. Imagine a start up clothing company offering dozen different types of clothes to their retailers?... Blake Mysockie when he lunched TOMS shoes he didn't have sun glasses or t-shirts or different designs of TOMS shoes. He started TOMS shoes with one design and 3 colors. As the business grew more ideas and more items were being develop and sold under TOMS logo. That is smart business practice. But if MLM company has only one or two products and they are not developing more products lines then most likely they are only there to make quick money and close their doors. Companies like that never last

5. They charge membership fees... Quite possibily a pyramid scheme. - not necessarily. Most MLM comapnies do charge membership fees aka registration fees. In most cases those fees are being waved if a distributor starts with more expensive kit. generally you can become distributor for Network Marketing company for $20 - $50 bucks. But you do not get any product. And if you do not have a product you do not have a business. Think of it that way. If you want to start traditional business, you have to register your business with the City the business will be operated in. It is called registration fee. And you have to renew your business license every year. Do you get anything for registering your business with the city???... yes, you do. Piece of stamped paper. Registration fee with MLM company gets you distributorship agreement and most likely access to your virtual office. Do you have to renew your registration fee with MLM company every year? In some cases it is only one time fee but in most you do have to pay that extra $20 -$50 per year just like paying to renew your traditional business license.

In conclusion, Pyramid Schemes are illegal and as you said it unethical and they do not expect from you much efforts. But you can not justify Network Marketing company on those values. Network Marketing pays based on your performance. You do nothing, you make nothing. You do a lot, you make a lot. If you will here someone telling you that all you have to do is buy a pack of products and just wait for the money to roll in then most like that person have no clue how this business works as Network Marketing is very challenging profession but it is very rewarding for those who are not afraid to work it. Ohh boy... and it is definitely worth it.

Good luck on your journey my friend.
Cheers.
[Post edited. All bold removed - Admin]

Sorry Powel. If you take some time to read up what the Feds have to say about it you will see that you are missing some key points. In the old days it was only about money, though there has been a lot of effort put in by crooks to make pyramid schemes look legit, when they are not.

An though it is true that some of my points are not clear cut on legit or not, these are points that I would suggest people pay attention to when they participate as they are all potential warning signs, if not blatant misleads.

Cheers!!

Yeah... I stopped paying attention to what FED's and GOV is saying... (they haven't been neither inspirational or truthful to american people so why bother) I make my own logical decisions of what I do...

Till next time....

Hi Pawel

Although I can understand your suspicions regarding the GOVs of the world, I have found that in this subject the information that they provide are not just based on polictical agendas but rather civil and criminal court cases that have been judged and documented. So though these things are publised by the government they are not just political grand standing and unbelievable rhetoric. They are certainly based on provable circumstances. Although being very critical is a good idea, I would suggest that you be a little more open minded, as this will probably save you some large mistakes in the future.

Cheers!!

NetMecca,

I appreciate most of your posts, but it seems to me this thread was started with you basically calling any MLM company that does not follow your company's philosophy "a pyramid scheme." Pawel answered each issue thoroughly and accurately. The government (U.S.) has defined what constitutes a pyramid scheme, and they are not nearly as strict as your post would indicate. There needs to be a real product or service. There should be sales of this product to non-network members.

But pricing? Would you have some government bureaucrat tell us what a good or "fair" price is? Thank you Big Brother. You are a dangerous person.

I don't like product minimums, but they do not define a pyramid scheme - neither in my mind nor in ANY court decision I have ever seen.

One or two product lines? This is just you touting your company's hundreds of product lines. MANY respectable and long lasting MLM's started with one or two product lines. So this is a blatant attempt to bad mouth your competition by calling them pyramid schemes, and it's slimy (IMHO).

You speak of being decent, ethical and socially responsible; but your post is simply an attack on most MLM's that are not yours. If you seek an alexa ranking higher than 4 million, I suggest you change your tactics.

Reasonable comments. I apologise and did not intend to offend. I am admittedly a little more hardline than most when it comes to my personal choices, and though you are correct in saying that their are many legit companies that walk a tight line, my comments are intended only to have people think carefully.

Again my apologies.

Cheers!

LOL.....

I can't help but sympathize with NetMecca ... but MarieA73 is right. These forums tend to become a place where someone (anyone actually) can "paint the picture" to support their deal with a pretty broad brush and try to demonize any other opportunity that doesn't match theirs with statements like "check the FTC" or "The GOV labels it this way...."

Look. There is only ONE TRUE PYRAMID that is illegal JUST from the "Pyramid Scheme" point of view. One with no product or service (think soap or cell service) to offer and you are paid ONLY for bringing in people AND the company only pays downline from NEW money coming in the door. When the new money stops ... it crumbles.

Now, that's NOT to say other companies haven't been shut down and were NOT a "Pyramid" by any means.

Over stating product claims, over stating income claims, not shipping product ... ever ... not paying commissions in a reasonable time, violating import / export laws, having merchant accounts frozen so they simply can't pay suppliers.

There's plenty of reasons why companies go bust. VERY FEW because of being a "pyramid" though.

Company charges a "set up" or "distributor" fee ... not a pyramid. If you don't like those fees, find a company that doesn't charge one! Or start you own and YOU give those costs away out of your own pocket. There are some great companies that have zero cost sign up and no monthly site fees out there.

Minimum autoship to be pay qualified. Not a pyramid. It's their right to have some kind of minimum "activity" that proves you "showed up for work" --- and if you're NOT a product of the product --- what are you doing there anyway?

Products priced too high to be "real" or "competitive" with the stores in your area. Not a pyramid. I mean really??? If that was the qualifier for being a pyramid I can think of a lot of places that would be "busted"!

Why the rant?

Because frankly, after more than 20 years full time in this industry, I just get tired of hearing people throwing the "scam" and "pyramid" terms around like they actually know what they mean, just to sound justified for NOT doing the work and owning up to what it really takes to make your living at this business.

But if you really want to compare ... look at the cost to open and run a major fast food joint or even a modest carpet cleaning franchise. 6 figures to start ... 7% to 12% of your GROSS revenues, forced to buy from THEIR suppliers and ya gotta wear the stupid uniforms!

Okay .... I feel so much better now!

While I agree with the above scrutinies of ANY MLM opportunity, pyramid schemes are ponzis.
None of the above qualifies an opportunity as a pyramid scheme, just bad management.

#1 is borderline illegal, and probably a sign of a weak product if there is one.

#2 really made me laugh when thinking of restaurants around here...
The HIGH priced ones survived while the cheap ones died.
Pizza Hut went out of business but Piza Lisa is booming.
Same location, but higher priced and higher quality.
Just one of many examples of price perception.
VW, Mercedes, or Lambo, choices abound.
Price does not equate to pyramid scheme.
Paying for nothing tangible does.

#1, #3, #5 are common with pyramid schemes but also with some legit companies.
I personally avoid any company that charges a fee to promote their products.
If they aren't making enough from their products, find another company.
Minimum quotas have pros and cons but are common in legit MLMs.
The main guideline is 70%+ of sales are to non member customers.
Less than that and the business may be a pyramid of member's $.

@NetMecca... you are right when it comes to being open minded and selective based on what the GOV is saying. BUT, here is the problem with your theory... GOV can approve or disapprove some business operations but the GOV can not tell me which company is better or not. It is like listening to a PRO Golfer how to play professional poker (who never played such game)... you follow what I'm saying? GOV is being presented with a biz application and whatever the procedure is to establish MLM company... The GOV stamps the paper and "We Are Open For Business"... what happens next it could go totally different direction. The GOV before "stamps approval" on biz application does not "waves flags" and screams out loud .... "WE JUST APPROVED ANOTHER LEGAL MLM COMPANY"... there are many companies out there who register as MLM company but it turns out as some kind of pyramid schemes. Leaving bad names for the real - legit MLM companies. We all probably remember incident with "LEGIT MLM COMPANY"... who was shot down recently, right??? (Im sure I do not have to mention any names).... it still makes me laugh when I remember some people saying "All I do is place on ad on line per day and I make such and such)...when it takes to choose the right legit MLM company you do not need GOV... you need experience. If you do not have experience, you need to educate yourself (tons of books on this subject), If you do not want to educate yourself, find someone with experience. If you do not want neither... then you be better off not even considering one as you will not succeed anyway... What really makes me laugh most of the time that people get so excited about something that is FREE TO GET IN or IT ONLY COSTS $10 PER MONTH but they expect to become financially free. From $10 per month??...really??? WOW... hold on, let me check if I have some change in my pocket?... I mean c'mon... how naive you need to be believing that you can create long term residual income with a program that only requires $10 per month.... next thing you know such company is on the news and the individuals are on onto a next BIG THING... but this time is only $7 per month with a Matrix plan 9x9. So once again, if you are a scholar at all you do not need GOV to tell you which company is legit or not. If GOV would be so "protective" to begin with then the GOV would create a Wealth I & Wealth II courses in High School so by the time we blow 25 candles on the cake most would be financially independent or well on their way there.

On the other hand.... I allowed myself to read few of your previous posts and it seems like for some reason you been discrediting MLM industry to begin with. MarieA73 had some good points in her last post pointing out those things toward your approach. I mean, I do not mean to offend you but, to begin with, if you had been a student of this profession for a while you would know better the difference between Pyramid Scheme and MLM company. Second of all someone ho really knows the business would never suggest or try to educate other person about this industry based on: quote "I have to buy a minimum amount of product... Pyramid scheme" - this is just an example as this would be incorrect suggestion as described by my earlier post. So my suggestion to you my friend is that next time before you make some allegations or state facts, educate yourself on the subject. Read some books, listen to what other industry leaders are saying about it and investigate such issues. Why, because by making such "facts"you are misleading others and in some cases you can even make a fool out of yourself... and if you are trying to find "followers" by playing "stupid" then believe me... it won't work... anyway... I enjoy the conversation... cheers.

The comments are great and it seems it this subject is sore point for many. I have to admit I find the heat most interesting, especially considering how skeptical I have found people on this subject in trying to promote my own venture.

Anyway, for starters, I would like to point out that my comments are only to be taken in the context of MLM, as taking them outside of this context is completely meaningless.

With regards to my hardline approach on this subject. Following a philosophy that avoids these issues guarantees that a company falls squarely within the MLM camp. It guarantees that there is no line straddling, and it guarantees that nobody can say it is a pyramid under any circumstances. Simply it is safe because it guarantees little or no risk, and I won't apologize for erring on the side of caution, from either a personal or professional perspective.

Considering all the heat though, it seems I need to clarify some of my comments by saying these are the points that I use for testing MLM that I consider participating in. In my experience these all show up as warning signs on my radar that I think need to be carefully investigated before I would even consider participating. So here goes...

1. I get a cut of the member registration or ongoing fees - Pyramid scheme
One could argue that it is no different than paying a commission for recruitment. Something that happens in many non MLM businesses every day. That said however, I am being sarcastic when I say "go ahead and invest..." When the driving factor is driven by an initial investment requirement, which you are supposed to get back by virtue of sharing in membership fees of others, this has been established to be totally risk based causing huge losses for members at the bottom and so the courts have ruled it a pyramid scheme. They collapse when there are no more new members and 9 out of ten times you will lose your money.

2. The products are over priced... Pyramid scheme
I would again remind you of the context here. If products are priced by the company to make it a more lucrative income opportunity, rather than the sale of the products themselves, it is really hard to see the logic. If people buy products because they think they will get money out of it, irrespective of whether the prices are competitive or not it changes the dynamic of the business and raises biiiiig question marks for me...

In fact I would share an example of my first introduction to MLM over 20 years ago. Company sold, amongst others toothpaste at 10 times the regular price, claiming high concentration to justify the price. (I am sure some of your will remember) Concentration or not, you end using the same amount on your brush, so a clever disguise of a pyramid, but a pyramid nonetheless. And with that I am aware that this particular company lost a class action suit of many million dollars due to this. Interestingly enough though they corrected their errors, and remain in business, and successful. Kudos to them.. They passed the test.

3. I have to buy a minimum amount of product
Is it possible for a company to be legit under this requirement? Sure it is. However.... Forcing people to buy minimum amounts of products changes the dynamic of the company and the business model as a whole. My question then is," what on earth would motivate them to stay competitive in their pricing?" This creates a conundrum which inevitably results and people getting stuck with basements full of useless products, that were overpriced and nobody wants. This to my mind is simply a pyramid disguised as an MLM for the same reasons as stated in my point two above.

The courts have held though that in order for these to at least straddle the line of legitimacy, the company would have to have a very good buy back policy. So if you cannot sell the product you were forced to buy, they will buy it back. Following this principle changes the business dynamic somewhat in the positive direction however, lots of line straddling going on there, since the psychology of the system would dictate that people would continue to hope and always attempt to avoid the confrontation that may come with returns for these reasons.

In either case, it is my opinion that this is a very unnerving prospect, and the risk of abuse is significant. So I avoid those.

4. They only have one or two products lines, and unique to their business.... Probably a pyramid scheme.
Perhaps my position is a little more hardline than it needs to be in this instance, and admittedly driven by a number of products and companies that I have seen attempt this over the years. That said however,having owned more than one business in my life, for any business to make it on one or two SKUs is very hard, unless your product is spectacular. If the product is not, I have to wonder about the dynamics of opportunity to earn income vs product saleability. And though there is some logic in developing niches, in the MLM context the only way this could be considered legit, is if the product is sold at a reasonable and competitive market price. If it is expensive (and I mean for what it is) then it is a major warning sign of an MLM disguise in my opinion.

Another thing that I have specifically noted on this subject is that often these companies sell products that are unique to them only. And though this may be legit, I have noticed that often the pricing of these unique products are considerably higher than they need to be, and they hide behind the uniqueness for their higher prices as a way to convince people to buy in. And no offense intended to the juice companies that are legit (and only because someone mentioned it in this discussion am I using this example) but 100% pure juice is 100% pure juice no matter how you label it. And overpricing it for the sake of the opportunity?.. Well I think my point has been made.

5. They charge membership fees... Quite possibily a pyramid scheme.
Again one I am probably more hard line than I need to be. Struggling with this in my own business, the challenge for a business to provide any kind of service without charging for it is significant. So I recognise that there are several legit opportunities that do charge a membership fee. But I would urge any one that decide the "INVEST". Make veeery sure that my point 1 above does not apply. If it does, maybe you make some money if you are at the top, but, realize that the risk equals the investment. And since I work very hard for my money, I have no desire to take unnecessary risks.

Anyway, I am continuing to enjoy the debate, so beat me up some more if your dare... hehehehe.

Cheers!!

I agree with CloserJim. The terms "scam" and "pyramid" are bandied about all too loosely and are usually just sour grapes from those who could not succeed for any number of other reasons - regardless of the program. A "scam" would involve material misrepresentation of facts designed to get people to part with their money. A "pyramid scheme" involves only money, no product. Words mean things. To alter their meaning to further your own agenda is wrong.

I unfortunately do not agree that pyramid schemes are just money related. But I guess each is entitle to an opinion. For reference though when I recently checked up on the latest regarding the subject and I found this link from the US trade commissions http://www.ftc.gov/speeches/other/dvimf16.shtm

I realise this is probably government, however I cannot for the life of me think of an agenda that would make them say what they say, without there being some smoke to it. Very informative and detailed. Perhaps worth a look.

Anyway I thought it might be of interest.

Cheers

Because of the nature of all business hierarchies the structure is such that it resembles a pyramid. That is the most important person at the top with ever widening levels of participants below them. All business endeavors resemble a pyramid in that manner. Because of the disappointments some people have had with multilevel marketing they believe that all multilevel marketing plans are pyramid schemes.

According to Wikipedia, the free encyclopedia, a pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.

To me that pretty well explains that a pyramid scheme is only for the benefit of the originator/s and the first few levels of participants. The money brought in is only from the enlistment of new members and there is no product or service supplied to back it up. Very soon there is not enough new members coming in to sustain the payout to existing members and the system collapses.

Yes, NetMecca, I have read that speech before. The key point being "[pyramid schemes] all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public."

It does go on to say that products can be used to hide that basic premise. If you get a commission from selling goods to the public, are encouraged to do so, and it is feasible that the public would buy such a product(evidenced by it actually happening), you do not have a pyramid scheme. Nowhere in your description did you talk about retail sales to the general public, and that is a key point to what institutes a pyramid scheme according to the link you provided.

You are right MarieA73, I did forget to mention the retail sales. I agree that this may well help distinguish between the fake and the real ones, though this goes towards the competitiveness of the products, and making sure that a distinction is made between promotion(say it is available) and actual sales. Availability does not necessarily equate to sales. So if the products are available to the public at a competitive price (the latter being equally important), I would say this is most definitely a sign that a company is likely legit.

The key is to be watchful of fake promotion disguised to achieve something else. Fortunately in most cases the unscrupulous ones tend to break more than one of the test points, so it makes it a little easier to distinguish, though still hard in some cases.

From a larger perspective, when I consider options, one of the things that will immediately highlight a potential issue is when the business dynamics of the MLM company seem odd. The same business principles applies to a legitimate MLM as does for any non MLM type business. MLM (for a legit company) should be a marketing strategy, but when MLM becomes the business and not the products or services that are being sold (or marketed by the strategy), then the dynamics of the company changes, and in my mind question marks jump right up. And for the most part the comments I have made, are intended to help highlight the dynamics followed by that business. If the business dynamics make sense, then it is probably a sound and legit company.

And of course personally I hate straddling lines, so I tend to take a harder line than most. So I am admittedly a very fussy. I guess I suffer from some trust issues. lol

Anyway, working MLM is great, and I am a fan of the business model..

Cheers

Well.... if we're going to get picky....

I don't consider "retail sales" to be the end proof that something is "legit"; as in
calling it legal, moral, ethical, --- can be profitable but not required to be --- and
stop calling it; "possibly, maybe, but I can't say definitely a good one" but it's okay."

The real term would be "End User of The Product" as a qualifier.

Simply meaning, taking into account one could be an "Affiliate". Someone who is "in the deal"
and isn't now and maybe never was a "retail buyer person".

No matter their title on a spreadsheet.... if this person is buying something over and over
and likes the stuff and consumes it ..... they count.

That's the real test of "legit" as long as THAT activity works financially too.

If it does then it's all good, assuming any LEGAL aspect has been as-it-should-be
setup of any company to be legit in normal business manner.

So ... off to play a board game with my Mother.

Later.....

You said it better than me closerjim. End consumption.... Good call.

Cheers

Yes, closerjim stated it well.

I feel consenting adults should be able to enter into any contract they wish as long as neither party is lying or misrepresenting facts to the other(fraud), and I'm offended that the government thinks it should protect me against making any kind of arrangement I like that harms no one outside of the deal.

That said, not every deal is a good one. For me, I look at what you are getting for your money if you never recruit anyone else. If you are required to buy x amount of products for y dollars, is it worth it? If you cannot reasonably argue that it is, in the end the opportunity is not sustainable.

I buy bread every week with no promise of future gains, but I don't care because the bread is worth the money.