Every year, thousands of people are caught in unsustainable business structures called pyramid schemes which can lose them hundreds, if not thousands of dollars, and cause immense emotional hardship. While they’re completely illegal, it’s a tricky thing for the government to legislate against and wipe out. The best defense it to be clued up on what pyramid schemes are, and how to avoid them. The risks may sound worthwhile, but they’re cleverly formed to make it impossible to take away profit, or even earn your original expenditure back. They can resemble very closely structures called multilevel marketing programs, which are legal. The best way to be protected yourself against these schemes is to exercise caution, but also understand how pyramid schemes portray themselves to potential targets.
What are multilevel marketing programs?
MLMs are systems whereby their revenue is a direct result of the sales made by representatives. Pyramid schemes, on the other hand, make most of their money from the sign-up fee that their recruits pay, with the products more a machine by which they can seem to legitimize their existence and structure, rather than a ware to be peddled. While multilevel marketing programs are legal all over the USA, they are treated with some skepticism due to their close resemblance to pyramid schemes. To read a case study which looks at the differences between legitimate marketing programs and pyramid scams, click here www.stay-a-stay-at-home-mom.com/jerky-direct-scam.html.
Pyramid schemes require an initial fee
Unlike MLMs, the income of pyramid schemes is based on the upfront costs paid by recruits. These costs can be hundreds or thousands of dollars but come with promises of riches unknown afterwards. If you’re faced with a scheme which seems too good to be true, but that requires a huge upfront fee, it’s wise to be very cautious. There is no way that the company can guarantee your returns.
They require you to recruit family and friends
Pyramid schemes usually promise that you’ll get your initial startup fee back by recruiting new members. This is how the pyramid takes its figurative shape. The goods that you’re required to sell will be items of little to no use, and act more as a token of the transactions rather than a product worth buying or selling, and certainly not one worth investment. This is a tell tale sign of a pyramid scheme if the item seems to have little value, but you’re still required to recruit many people to recoup your costs.
You have to buy a lot up front
Either alongside or instead of the huge upfront costs, pyramid schemes can require you to buy vast amounts of the product up front, for large sums of money, in order to sell on or pass to your new recruits to sell. This is the way they tie you in, as you become the legal owner of these products, whether you can sell them or not. These items could be things which are self-referential to the scheme, such as information booklets, and you’re required to sell them through your own personal franchise.
You are forced to buy things
As with any other criminal organization, there’s a lot to be said for their staff management and customer relations. People that enter into pyramid schemes report being threatened when they asked to leave, and were even made to feel as though they had to buy things they didn’t want or need, just to keep themselves in good standing with the scheme.
Much like many scams, pyramid schemes target vulnerable individuals, and force them to pay out extortionate amounts of money to get nothing in return - it’s not really surprising they’re illegal. If you feel as though an offer you, or a family member, have received is too good to be true, it’s probably is. Pyramid schemes are marketed as fantastic opportunities to get rich, join a community, or get through financially difficult times, but in actuality, they just tie people into debt and long-term problems. If you come across a system which requires a large upfront fee which you can only recoup by signing up family or friends as new members, it’s best to avoid them like the plague. Help other people to avoid them too by reporting any suspicious schemes to Action Fraud. Always be aware and exercise caution when signing up to any new schemes.