Network Marketing - What the Heck is a “Pyramid Scheme?”
By Karl Hummel
If you’re going to promote any Network Marketing Business, you’re going to hear this eventually, and it doesn’t matter what company you’re with, or what product and service you’re offering. “Oh it’s one of those PYRAMID SCHEMES!” In fact, if you’ve been in Network Marketing for more than a month, you’ve probably already heard this by now.
When someone says this, it’s usually stated in a negative way and with a condescending tone. First of all, don’t make the mistake of taking this personal. They’re not directing this towards you, it’s actually just the perception they have of any Network Marketing or MLM Company. When someone say’s this to you, how you handle the situation and your response is completely up to you. If you’re not really sure how you should respond to this, I would suggest that you ask your Up-line, or a good mentor. That’s actually a topic I’ll cover need to cover some other time.
So what do they mean by “Pyramid Scheme“? I really don’t think the majority of them even know what a “Pyramid Scheme” is! Most of the time they’re probably just repeating what they’ve heard other people say, but it still sounds offensive to those of us in this industry. I’m not recommending you do this, but I’ve actually asked people, “What do you mean by Pyramid Scheme”? You’d be surprised what they’ve said. Anyway, to clear this up, here’s the actual definition listed by two respected sources.
Wikipedia.org lists a “Pyramid Scheme” as: “A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. It has been known to come under many guises.”
Wiktionary.org lists a “Pyramid Scheme” as: “An illicit money-making investment scheme whereby early investors are paid primarily or wholly by later investors. Eventually all such schemes fail to the detriment of recent (later) investors.”
Notice that both definitions imply that this model is non-sustainable. So if your company has been operating in the United States for more than a year, it’s probably a safe bet that the commission structure is set up fairly, and that the FTC is fine with it. Otherwise, they would quickly disappear, or the FTC would have already shut them down.
Pyramid schemes are illegal. Network Marketing Companies are not. If someone is caught operating one, they will be shut down immediately. Rest assured that they can, and will be charged, and all of their assets will be seized. If they’re convicted, this can receive huge fines, and even jail time. I hope this helps, the next time you hear this!
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