Hey guys, if you are like me then you are probably often looking into ways that money can be made online. Unfortunately however, there are just as many scams out there as there are legitimate ways in which to make an income and one of the most common ones that people get themselves caught up in are pyramid schemes. This is often due to the fact that pyramid scheme ‘managers' have become adept at making themselves look legitimate even though they are far from it. So if you are looking at the program and asking yourself “is this a pyramid scheme?”, here are 5 things that you can look for.
What is a Pyramid Scheme?
Well that's the trick – there are a number of varying opinions out there on what actually constitutes a pyramid scheme. I mean technically, every business could be classified as a pyramid scheme if based purely on its hierarchical structure or organizational chart.
Next we have the Multi Level Marketing (MLM – a.k.a Network Marketing) industry that due its heavy focus on recruitment is often written off as just another pyramid scheme. There is no doubting some are, but again, there are some grey areas here as well (which I will address later on). So, in order to give ourselves a baseline, let's go all legal for a minute with a formal description. The United States Federal Trade Commission (FTC) describes a pyramid scheme as follows:
“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.”
Further requirements are that they need to be able to show that their profits come from the actual sale of goods and not from recruitment – which is the fine line that many MLM companies skirt around… So, based on the description above, let's run through my 5 tips to look for below:
1. Do they promise big returns for little to no work?
I have put this one first as even though we will touch on it again in each of the next four options below, if you see this, close your browser down and go take a cold shower. Whether you are looking at a pyramid scheme or not, any site that tells you that you can make money without doing any of the work is a scam. There are absolutely a lot of ways that you can make money online but trust me, all of them take hard work and dedication to succeed. I mean how many traditional brick and mortar stores do you know that open their doors for 3 minutes a day and make a fortune?
Pyramid schemes do it via promises that all you need to do is sell a product that “sells itself” and get your friends to do the same and you will be rich! Just remember the old reality test – if it appears too good to be true then it probably is…
2. Is there an actual product to sell?
This is the biggest clue. If you are being recruited into the program under the proviso of making huge profits on a product that really doesn't exist, then run away as fast as you can. If I am being honest, these are becoming less and less prominent now due to the crackdown on them in most countries around the world however that doesn't stop a product being shown in the sales blurb.
If you are unsure, ask to see the product or, if you think it is worthwhile, buy it. You will soon know the truth if there are more excuses than actual products. Oh, and just in case you are wondering – an eBook is NOT a product on which to base this sort of program.
One of the most common versions of this sort of arrangement is called a Ponzi Scheme. This involves new recruits paying an entry fee to the program on the promise of a profit. Sadly the profit is simply the money that those recruited under them pay to join the program as well which is divided out to those up the pyramid lines. As more and more people are recruited however, the money runs out as there is not enough to go around and those who entered late in the piece lose everything.
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3. Is the focus on recruitment rather than sales?
This follows on from the comment above in regards to asking for a product. As you run through the literature (if it exists to start with) for the ‘program', check out where the focus is aimed. Does it:
1. Cover hints and tips as to how to sell a product – and I mean a real product, not just the program itself
2. Does it simply talk you through how to recruit others?
If your answer is number 2, then chances are you have stumbled into a pyramid scheme.
High Ticket Products
A common trick with these sort of schemes is to entice new members with promises of making money selling high ticket training programs. This makes new members believe that they are actually selling programs worth $1000s of dollars when in fact, the training program is simply covering the steps required to recruit more members to sell the same program to recruit even more members (if that makes sense?). Again, if you ask to see the product and it is a simple e-Book or one page website, it is probably a pyramid scheme.
4. Do you have to purchase a product or pay a joining fee?
This is a follow on from number 2 above in that quite often, those running the scheme will offer you access to the high ticket training for a ‘discounted' rate – i.e. “Join now and save 75%”. Again, if you are being charged a joining fee make sure you are getting a real, tangible product in return.
Sales red flags
There are a number of red flags you can look for here if you are being asked to hand over some cold hard cash in order to join a training program. These are:
- Long sales videos with lots of pitches but with no identification of the actual person behind the program.
- Fake testimonials telling how they have made $1000’s in the first month that they owned the program – hint: you will probably find the speaker under the ‘paid reviewers' section on Fiverr.com.
- Constant reminders that “I know you have been scammed in the past, but this is different – this is the real deal”.
- A long story about how the speaker was broke and about to lose his house and marriage until he discovered this program.
- The video/sales pitch never actually explains what the program is.
5. Is your payment traceable?
This one probably goes without saying, but if you do decide that everything looks above board and you can see value in the money you are about to pay, close your wallet or purse straight away if your payment is requested via non-traceable means. If you are asked to pay by cash, money order or some obscure crypto currency then start asking questions. This also goes for promised payments back to you for your efforts in selling products or recruiting members. If you are asked to provide a bitcoin wallet, run!!
This also goes for in-program purchases. Many programs will ask to you to stay ‘active' via the ongoing purchase of products in order to get a return on your investment (again – do NOT pay for another e-Book). If there is no refund guarantee or a promise to do so via non-traceable means then chances are that the pyramid stops with the person whom has collected your cash.
Are MLMs a Pyramid Scheme?
Ok, so as I have mentioned above, when it comes to pyramid schemes, many place MLM programs right at the top of the list. And if you do any research into what constitutes a pyramid scheme (apart from my 5 red flags above) it is easy to see why. Almost without exception, MLM programs do tick a lot of the pyramid scheme boxes in that:
- Less that 1% of members make good money.
- There are some ongoing cost requirements.
- Some charge and ‘admin' or ‘website activation' fee to join.
- Information in regards to compensation plans is not as easy to locate as it should be.
- There is a large focus on recruitment.
- Some provide products at extremely over inflated prices.
And you know what they say… If it walks like a duck and quacks like a duck…
How to ensure your MLM is legitimate
Look, MLM is an extremely difficult industry in which to make money – regardless of the niche. However, the main thing that keeps most MLM companies in the good graces of the relevant consumer protection bureau of their country of origin is that they do make most of their money from the sales of their products. In their eyes, recruitment is utilised to assist members to make money, not the company itself. So, with that in mind if this is something that you would like to try your hand in, then I would suggest that before you sign up, do the following checks:
- Do they offer solid products? – Do your research into the products that they sell – obviously check if they are real to start with but then look at quality, popularity and even manufacturing processes
- Is all information visible? – Trust me, I have seen MLM sites where even the price of the product is hidden (in fact in more than a couple of occasions). If you cannot easily find all information to do with pricing or their compensation plan ad commission calculations are non evident or ambiguous, then I would be doing a lot more research first.
- Do they make you pay out? – It is a common trait for many MLM programs to set minimum sales targets in order to earn commissions. This usually means that if you cannot sell enough of the products to your customers, then you will have to make up the shortfall personally. Avoid programs with high payment requirements from you as a member – especially if there is no buy back option if you are not satisfied with the product – this is a common behaviour of a company that is more of a pyramid scheme than not.
- What is their training focus? – As per our Pyramid scheme red flags above – if their training is focused on recruitment rather than selling the products, then chances are it is a pyramid scheme. Also, check the compensation plan to see if more of the bonus options are aimed at recruitment rather than sales.
- What do their reviews say? – Now inherently, due to the fact that MLM is not easy to succeed in, you will always find a lot of negative reviews aimed at the companies involved. However, still look for those that have high number of complaints about being hassled to recruit rather than sell – trust me, they do stick out.
At the end of the day, trust your gut – as with pyramid schemes in general – if it sounds too good to be true, then it probably is.
And there it is – 5 things to check to see if you are about to be sucked into a pyramid scheme. I hope it has been helpful and as usual, please do not hesitate to comment below if you have any questions, need some advice or have any experiences to share.
Do you want further assistance with any of the above or would you like to know how to build your own legitimate online business?
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Until next time
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