What is a Pyramid Scheme?

December 2, 2010

What is a Pyramid Scheme?

So, what is a pyramid scheme? People have been warned not to get involved in a pyramid scheme. Most don’t have any idea what a pyramid is. Somehow we have allowed other peoples prejudices to become our own. Most people think a pyramid is where one person makes all the money off people below them. That sounds like the U.S. Government and the taxpayers, to me.

Love all, trust a few. — William Shakespeare

A pyramid scheme is a business that gains the majority it’s revenue from recruiting other players into it’s game. The present players are paid with the sign up fees of the new players. These businesses generally do not have a product or service that the general public would buy on it’s own merits.

A pyramid scheme is not a business that gains most of it’s profits from retailing to customers. Many direct sales companies, network marketing companies and multi level marketing companies derive as much as 70% to 80% of their profits from selling to retail customers.

In these companies distributors retail products, and recruit other distributors to expand their networks. They are paid on their retail sales, and and overrides on the retail sales of their team.

Examples of pyramid schemes: The FTC has shut down many pyramid schemes over the years. For instance there was an internet hosting mlm a few years ago that was shut down. They were selling a package that had a lifetime hosted web site for a flat fee.

Trouble was, the only people buying a site were distributors. They only bought one in order to enroll other distributors. the company had no plans or emphasis on retailing their web sites. Of course once they were shut down, all their lifetime web sites disappeared.

These get Get rich quick schemes without viable products to retail are sure to fail and illegal. Another area rife with schemes in network marketing.

While there are many legitimate companies, there are multi level pyramid schemes to avoid. While multi level marketing is legal, there are many players that prey on people’s greed.

Usually, these pyramid companies will try to get distributors to sign up for large sign up fees, in order to pay out huge commissions to a group of upline distributors. Most networking companies fees are less than $500.00 for start up. If a company wants $1,000 dollars or more for a start up fee I would beware.

Any company that proposes you sign up with them must have a viable product or service to sell. The last few years has seen a raft of pyramid gifting programs. Here you sign up and give a cash gift to your sponsor. After you join the pyramid and pay your fee, now you can accept gifts from other suckers. Gifting schemes are illegal.

There are many work at home schemes that prey on people’s desire for an easy home job. One of these is paid surveys. See my article: are Paid Online Surveys a Scam?

“Ignorance is curable, but stupidity lasts forever!” — Unknown Author

Some companies, are still pushing the old home assembly schemes. These are typical work at home scams that prey on the ignorant. Here they get a consumer to pay a large up front fee to have the right to assemble jewelry or other products for them.

The materials they provide will not make enough jewelry to pay the enrollment costs and the consumer who signed up would never recover his costs. Rarely is any Jewelry sold through retail stores. The whole scheme is kept afloat by more suckers joining to assemble products.

Simply put, the answer to what is a pyramid scheme is: It’s any company that is out to defraud the public by not providing sufficient value for their money. Generally if a company is making 50-80% or more of their money from legitimate product sales to and end consumer, it is legal.

http://www.workfromhomenetworkmarketing.com/what-is-a-pyramid-scheme.html

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