Posted on April 5, 2021
Is Your Business a Pyramid?
Pyramid schemes are an unethical marketing strategy and a legal Grey Fraud. In a normal business, there would be limited levels of control exercised by the Board of Directors. They would have the power to hire and fire, issue employment, and control company assets’ buying and selling. They would set prices for services and contracts, determine the contracts’ length, and have overall responsibility for how they operate. They would set their own standards and rules, and incentives for employees.
In pyramid schemes, however, the Board of Directors are removed or replaced frequently, and the company relies on a network of independent distributors to continue the marketing scheme. The independent distributors do little if any work and receive no payment for their efforts. Independent distributors are encouraged to recruit more distributors, which increases the amount of money being made by the Company. However, because the Distributors are paid only a portion of the overall sales, their profits remain constant.
This can result in a pyramid scheme where the company does not make money off new distributors but continues to make money off the recruits. It can also result in a case being filed with the Federal Trade Commission (FTC) or the Better Business Bureau (BBB) to investigate the Company’s business practices. If the investigation results in the distributors being charged with pyramid scheme charges, they may have to cease their business and refund their money or else face fines and possibly jail time. It is doubtful, though, that a Company would knowingly allow its distributors to become defaulters. There is too much at risk.
Although many people believe multi-level marketing is a legitimate way to make money, there are many pyramid schemes and other illegal business practices related to multi-level marketing. People who are recruited into multi-level marketing often sell products that cannot be purchased for retail cost. Products are often advertised as “start-up kits” where a distributor can make thousands of dollars fast, and then the products must be shipped to others in the company.
Another common scheme is where a distributor will receive letters from a higher up in the company, encouraging them to recruit other distributors. In these cases, no real products are being sold, but instead, the recruiting team comprises mostly friends and family. The goal of these middlemen is to make money quickly and without producing quality products. They often require distributors to buy more products than they can resell.
Pyramid schemes are illegal and often result in jail time. For a pyramid scheme to work, a minimum number of distributors must be participating. If there is any break in production, the system breaks down, and no one can properly make money. If enough people do not participate, making money from the investment required to start becomes impossible.
It is important not to believe the hype. If someone pressures you to recruit new distributors or sell their products, you should look at their business closely. If they have a history of making much money quickly and without much effort, they most likely are not using a true pyramid scheme. Distributors do not make much money per customer, but instead, much money over time. They need to sell their products to retail customers to make a lot of money over the long run.
When you consider whether a distributor is making enough money with retail sales, you need to look at the total amount of money being spent. If the distributor is making a profit and putting their profit margins towards salaries, kickbacks, and other possible expenses, it might be safe to purchase their product. However, if you find that most of their profits are going towards taxes and commissions, then the business may be a pyramid. You mustn’t invest your money in a business with a clear track record of making a loss. Look for products that are designed to make you more money and are easy to market. If the company does not list on the Internet, you should stay far away from them because it is almost certain that they lie to you about their business. For more information, go to https://www.scamrisk.com/sellosity/.