Pyramid schemes are fraudulent businesses where participants are paid to recruit others to participate. Pyramid schemes are often disguised as multi-level marketing businesses or MLMs. You should be aware of the following information before investing in any MLM business.
Network Marketing — also known as MLM ('multi-level marketing'), relationship marketing and referral marketing, is the 21st century way for entrepreneurs to build a high income, without having to make huge financial investments. Most MLMs don't need any premises beyond a computer desk and perhaps a filing cabinet (though some may need storage space for product). Unlike franchises (the business opportunities of the 20th century) in general the upfront investment is small and training is usually free or very cheap. Overheads are low or non-existent, profits can be very high indeed.
At first glance, MLM is very similar to the pyramid schemes which have been made illegal in most of the West. In the pyramid, a representative pays his initial stake when he is recruited and is then shown how to recruit other representatives. Every representative recruited brings a bonus and adds to the potential residual income. But, if no customers are required, sooner or later the whole structure will collapse, because there is nowhere for the income to come from. In pyramid schemes, the people at the top are the only ones who can make money, because there is a limited pool of potential recruits, and no other source of income. It's pretty obvious that no company can survive for long without any customers.
Pyramid Scheme
Understand the definition: A pyramid scheme is a non-sustainable business that involves the exchange of money, usually in the form of a sign-up fee, and usually has no product or service.
Multi-Level Marketing
Understand the difference. Multi-level marketing companies follow a similar concept to a pyramid scheme, which is a reason for most of the confusion, except that two significant differences exist.
1)One difference is that members at any level of a multi-level marketing model can theoretically make income through the company’s products and/or services without signing up any new members.
2)The second difference is that members of any level in a multi-level can earn more than the people who signed them up.
3)Finally, multi-level marketing companies are legal although structured almost exactly like a pyramid scheme
4)MLM Plans will lead business.
4)MLM Plans will lead business.
Know that pyramid schemes are illegal!
The only people that are able to make money on a pyramid scheme are the people at the top of the pyramid.
The above picture proves that pyramid schemes are unsustainable. As stated above, because pyramid schemes offer no product or service, no possible way exists for the people at the bottom of the pyramid to make any money. The only way to make money in a pyramid scheme is to sign-up new members for a fee. However, as the above picture shows, this becomes impossible when the scheme reaches a certain level. The end result is that people can spend upwards of several thousand dollars to enroll in one of these scams and will end up losing everything
The scheme:
Make money quickly by purchasing a starter package that promises immediate guaranteed payouts of anywhere from $700-$1,500 per month. These payouts are unrealistic and are promised only to induce the investor to buy into the scheme. Mandatory purchase of high-priced starter packages are hallmarks of this scheme and the sales pitches usually promise higher payouts if more money is paid for the starter package.
The product:
In many illegal schemes the promoter spends little time explaining the product because the product is ancillary to the overall scheme. Recent
schemes have involved products related to software services, mobile marketing platforms, app sales, cloud computing services, and voice-over-internet applications. Often unsold products purchased by the investor may not be returned to the company. Instead, promoters emphasize that the way to make money is to recruit other people to sign up and purchase the starter package.
The sales pitch:
Make money without working hard or make money through minimal effort like making referrals or inviting others to presentations.Investment of money where you expect to make returns mainly through the efforts of others is potentially a security. Individuals must be registered to offer and sell securities and securities must themselves be registered or exempt from registration.
How money is made:
Money is made primarily when you recruit others to purchase the package, NOT from product sales. Illegal pyramid disguised as fraudulent MLMs pay earlier investors with funds from later investors. Also, specific payouts are often guaranteed by promoters, but actual
payouts fall far short of the guarantees.
understand more about the difference between network marketing and pyramid schemes here.
understand more about the difference between network marketing and pyramid schemes here.