How to spot a Pyramid Scheme
Opportunity or Scam?
Many new Online Marketers are not aware of the fact that pyramid schemes are illegal. To add injury to insult, the majority of people who spend money on a pyramid scheme end up with losses. The damaged reputation is free.
Most pyramid schemes are pretty good at motivating you to annoy and bug everyone around you – starting with your friends and family.
Pyramid schemes used to collapse latest after 2-3 years. With the speed information spreads over the internet, they tend to collapse way faster nowadays. Sometimes from intervention by the government, most often because they are not able to generate new “customers” once the word of the scam goes around.
Only a few people on top of the pyramid make money. Not by selling products to end customer or businesses, but by fooling you with a vision of unlimited income.
Some forms of Multilevel Marketing are legit (if you are into that which I am not) but it can be hard to spot which is which.
What is Multilevel Marketing?
In a multilevel marketing scenario, you sell products to the public. You also get a percentage of the sales of people you recruit.
Not all multilevel marketing plans are legal. If your pay is based on the amount of products you sell to the public it might be legal. If your income is based on the number of people you recruit it´s an illegal scheme.
The FTC (Federal Trade Commission) has posted this article recently HERE
Network Marketing has a bad reputation. Many snowball schemes present themselves as MLM or sell worthless products at high prices to make people believe that it´s not a pyramid scam.
Why Pyramid and Snowball schemes don´t work
There are different forms of these scammy systems, some grow faster, some slower. It does not really matter if its called a Ponti scheme or whatever as the outcome is the same. The thing that they have in general is that they do not work – besides for the scam artist on top.
Have a look at the graphic I created for you masterfully (:
Based on the typical scheme of every member recruiting 10 new members the 10th layer would include about 90 % of the world population.
Let´s say you only count the people in America. Now subtract the ones who have no interest in self-employment of any kind, the kids, the ones who do not have the money to buy in. You see?
Keep in mind that you will have to pay money to be able to participate in the scheme. Now, the only way for you to make your money back is recruiting by convincing other people that they will make their investment back and much more.
Overall it is impossible to make money with snowball systems and such so that this form of recruiting is considered fraud and, therefore, a criminal offense.
By the time you realize that you will not get your money back, you will probably try to contact the scam artist. As soon as the number of complaints goes up and it gets too risky, the scam artist will be like vanished from the face of the earth – he was prepared for this situation and has moved on to his next “project”.
Let´s ignore for a second that these schemes are illegal. Let´s say you were in the second layer of only 10 people. Everyone has to make the moral decision for themselves if they want to make money by scamming other people.
Hot to spot an illegal scheme
Here are some factors that should ring your alarm bells:
- The system is based on recruiting and only works if new members are constantly recruited
- If goods are involved they are primarily sold to the sales people – not the public
- The sales people get pressured to buy large amounts of stock. Returns are not accepted
- Salespeople are being told to recruit family and friends
- Salespeople have to buy their way into the system. Either through having to pay a fee or buying info material, items for demonstration, or training seminars
- The system seems to be like a cult more than a business
As always in life: If it sounds too good to be true it probably is.
There are more than enough great opportunities around (and as a newsletter subscriber or regular reader of my blog I will share many with you) and I personally have a zero-tolerance for scammers and a low tolerance for dumb.