We are all attracted to the idea of making quick money with very little effort required and pyramid schemes are these days been masked as attractive retail multilevel marketing (MLM) schemes which promise huge returns within a short period of time.
The last thing you want to do is become part of a multilevel system that is in reality an illegal pyramid scheme. So how can you distinguish a multilevel marketing schemes from a pyramid scheme?
Both MLM and pyramids have multilevel payment systems, but that is where the similarity ends.
Below are red flags that you should note when questioning the legality of a multilevel scheme.
• Where there is no legitimate product or services being sold, but only the opportunity to be part of the scheme.
• Pyramid promoters will try to mask their true intent by selling a product at a price that is above its market value in order to get some compensation from the plan i.e the product is sold at a price that sees members ranked high in the scheme benefit. The product might not sell and you will be left with items you can’t easily dispose off.
• Pyramid programs hide their true face by allowing a minimum price for a “start-up” kit and they will then compel you to buy more expensive items such as training or demonstration materials. the start-up kit should be the company’s expense and not yours.
• Compensation only comes from selling products or recruiting members, and where it comes from selling the product, then it’s likely that the product is not to be sold to the final consumer but passed to another seller so that each subsequent seller gets a commission from the sale
•Where recruitment is for unlimited number of members, it should be seen as an indication that the scheme is targeting a large network of members who would in turn benefit those at the top of the pyramid. The larger the network the lesser the possibility that new members will make money from the scheme
• The pyramid “company” will refuse to agree in writing to reposes a reasonable percentage of unsold sales materials.
•If the opportunity is sold as a “get-rich-quick” scheme, beware. The only people who stand to benefit are those who can get others to buy the product.
Other pointers include:
1. Requirement to pay a fee to join and recruit new members to be able to earn any income
2. Members identity is kept secret, even from other members
3. It becomes difficult to prove the legality of the scheme
4. There are many testimonials about the product or service, all left by people who are impossible to contact.