How to Spot a Pyramid Scheme?
People who aren’t familiar with MLM usually think that this business model is no more than a legalized pyramid scheme.
While stalwarts of MLM companies defend the dignity of the industry with their lives, it is undeniable that many MLM companies who have appeared legitimate in the past turned out to be a pyramid scheme.
Not all MLM companies are pyramid schemes. If you are planning to dip your toe into this industry, it is crucial that you learn how to spot a pyramid scheme from a legit MLM company.
In this article, I will share with you all the telltale signs that give away a pyramid scheme. But first, allow me to start by explaining what a pyramid scheme is.
What is Pyramid Scheme?
A pyramid scheme is a form of fraudulent investment program that promises each participant a hefty income potential every time they recruit/sponsor/enroll new people into the program.
While legitimate MLM companies focus their compensation plan on the sales of services or products…
Pyramid schemes give more emphasis on recruitment and awards people base on the number of individuals under their organization/team/network.
How Does a Pyramid Scheme Works?
In most cases, pyramid schemes will get you to join the program and part with your hard-earned money by gaining your trust.
They do this by using the people closest to you who are already members of the scheme.
These people are also potentially unsuspecting victims, thinking they are in a legitimate business opportunity to make money at home – or a potential source of passive residual income.
They might not even know that they are already involved in a pyramid scheme!
The sponsors that are recruiting you to a pyramid scheme (whom he or she thought is a legit MLM company/Investment program) might be sincere on his or her intentions to introduce you into what they thought is a “great” money-making opportunity or to a breakthrough product.
This is why if a friend or family member invites you into a business opportunity that turns out to be a pyramid scheme…
Give them the benefit of the doubt. Some of them, as I have said, could be just a victim too.
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How Does a Pyramid Scheme Convince People?
The people who are behind pyramid schemes are masters of diverting your attention towards the very few people at the top who are making tons of money.
But in reality, a vast majority of the people in the pyramid scheme (which possibly includes YOU) does not make money and will eventually fail.
All the money lost by the vast majority of the people at the bottom of the pyramid is transferred and shared by the few on the top, the few people who are likely to be members of the entire scheme during its early stages.
This is why it is essential for you to learn how to spot a pyramid scheme to protect yourself, your family and friends from this shameless act of deception.
To help you out, below are the telltale signs of a pyramid scheme.
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Pyramid Scheme Checklist
Below are the telltale signs of pyramid schemes.
#1 Promises Large Amounts of Monthly Income
One of the first telltale sign you have to watch out to identify a pyramid scheme is the unrealistic earning potential.
Recruiters from pyramid schemes will lure you into joining them by convincing you that it is a legitimate way to make easy money with little to no work at all.
They will say that you will earn this and that just by doing minimal work. They will promise you a substantial earning potential without actually telling you how it is possible.
#2 No Products To Sell
One of the most obvious giveaways for a pyramid scheme that disguises as a legit MLM company or an investment program is the lack of products.
The Federal Trade Commission has clearly drawn the line between a legit MLM company from a pyramid scheme.
Most pyramid schemes will pay you base on the number of people that you manage to enroll in the program and not on how much product sales you make.
#3 Costly Membership Fees
I am not saying that all business opportunities that require hundreds and even thousands of your hard-earned money as a membership fee are scams.
However, costly membership fees are one telltale sign of a pyramid scheme.
To survive, pyramid schemes need a continues flow of pay-ins and new member signups to finance the whole plot.
Since there are no products to sell, pyramid schemes will use the membership fees of the new members to pay commissions to the older members.
#4 Ridiculously Expensive Products
In some cases, pyramid schemes avoid being shut down by the FTC and authorities by going around #2.
As cunning as they can be, the personalities running pyramid schemes come up with products that act as a mask so that authorities won’t go after them.
However, there is an easy way to spot a pyramid scheme from a legitimate direct selling or MLM company just by looking at their products.
Most of the time, pyramid scheme products are very expensive that it is almost impossible for you to sell them to other people.
When you ask them why these products are at least 3x the cost of its counterparts in pharmacies and supermarket…
Your sponsor or the company will convince you that this is because your products are:
- “one of a kind“,
- “backed up by years and years of extensive research” or;
- contains a “magical ingredient” that no other products have.
To make their claims more believable, they will mention famous personalities and celebrities that endorse and are said to be “using” these products.
Make no mistake. These personalities are PAID by the company to smile in posters and say something good about the products on TV and social media. It’s all business.
Since you will find it hard to sell these products, you will then be forced to look for other options to get back the money that you invested and then make some.
Which brings us to the next telltale sign on how to spot a pyramid scheme
#5 Heavy Emphasis on Recruitment
Any pyramid scheme will need a continues flow of new aspiring entrepreneurs paying membership fees at the bottom levels to survive.
This is why often, you will find individuals that are involved in pyramid schemes desperately recruiting their closest friends and family members.
The company promises them huge incentives and commissions for bringing more people in, but in reality, they are being used to keep the whole scheme going.
Without substantial recruitment activities and a massive influx of new members, a pyramid scheme will cease its operation.
This is why when your company emphasizes recruitment rather than selling your products, that’s the sign for you to run away.
#6 Monthly Product Reorders and Other Maintenance
Lately, pyramid schemes have come up with new ways to smooch money from their members.
Other than recruitment, they make sure that the scheme will go on even when some members fail to recruit new people by implementing strict monthly maintenance and product reorders.
Again, I am not saying that companies that uses this program are indeed pyramid schemes.
What I am saying is, what’s the point of forcing you to buy in a minimum order of expensive products when you are already helping the company big time by selling its products without advertising pay?
If you have some insights about these matter, kindly share your thoughts in the Comment Section below.
#7 Sounds Too Good To Be True
Often, when an opportunity to make money sounds too good to be true, it’s because it probably is.
I understand that each of us dreams about an opportunity that will allow us to make 5, 6, 7 or even 8 figures of income with minimum effort.
However, this is what gave the scammers such as the ones behind pyramid schemes to take advantage of us.
Making money is hard on any legit business model.
No matter how other people sugar coat it, the truth is, to make a substantial amount of income, you need to possess the skills and knowledge.
You also need to exert your maximum effort; you need to work hard and be patient when things don’t go according to plan.
And most of all, making a living out of any business will require time.
How to Protect Yourself from Pyramid Schemes?
It is not harmful to always carry a little skepticism when you encounter money making opportunities you are unfamiliar with, especially the ones that rely heavily on recruitment to succeed.
As much as there are plenty of legitimate business opportunities today, the risks of running into scams are also very likely.
It is crucial to keep in mind that there is no such thing as a Get-Rich-Quick scheme.
In any business model, you have to work hard, learn the skills and be patient to succeed. Most importantly, it will take time.
In the case of network marketing and MLM, you must have a success formula on how to succeed in an MLM business. You must also educate yourself properly on how to spot a pyramid scheme from miles away.
There are resources readily available for you to tap into so you won’t fall into any form of scams. In addition to this article, here’s what the FTC says regarding this matter.
My Sincere Advice To You
In addition to recognizing the telltale signs of a pyramid scheme, I urge you to help your community and other people by sharing this article.
If you want to reach your goal of financial independence by starting your own business, one of the best ways to do that is by avoiding falling into the scams and pyramid schemes.
Before you invest your money into a particular business opportunity, I humbly advise that you equip yourself with the proper knowledge.
Thank you for taking the time to read this article on how to spot a pyramid scheme. I am hoping that this has been useful for you to make better and informed decisions in the future.
If you have any concerns about pyramid schemes or if you want to share additional information that might help our readers, please feel free to utilize the Comment Section below.
Until next time.