If you’ve ever tried to make money from home or online, I guarantee you’ve run across pyramid schemes. Some high profile companies who run pyramid schemes include Mary Kay, Advocare, LuLaRoe, Avon and Amway. And there are countless other small-time operations out there, too. You’ll never hear these companies use the term “pyramid scheme” though. The legally-appropriate term for these companies are “multi level marketing” (MLM) companies. And you won’t find that term on their websites or social networks, either.
MLMs? Pyramid schemes? What’s the difference?
If we’re all being honest, MLMs are pyramid schemes in disguise. Typically structured like a pyramid (shocker!), MLMs are organized in a way where the people at the top of the organization receive an income stream from people beneath them. Think of Mary Kay. You join as a distributor, are strongly encouraged to get other distributors to join beneath you, and you earn commission off of them and everyone else they recruit (your “down line” distributors).
Funny enough, pyramid schemes are illegal in the US and dozens of other countries, but companies big and small find loopholes around the laws. MLMs, on the other hand, can be legally legitimate, but I argue there’s no such thing as a legitimate MLM. The Federal Trade Commission differentiates MLMs from pyramid schemes if the MLM “has a real product to sell” and most of a member’s money is made off of sales to the public versus money made through recruiting new people into the group. It’s an extremely fine line between the two.
How to spot MLMs and pyramid schemes
My wife gets Facebook messages every now and then from a distant friend or stranger trying to pitch their amazing “not multi-level-marketing” opportunity, but every time those people eventually wind up saying the same thing. “Just join my introductory meeting to learn more” or “pay the one-time startup fee” or “I have an unbelievable opportunity for you” are a few examples.
Typical signs of MLMs and pyramid schemes include:
- High-pressure sales tactics
- Lack of company transparency
- Deceptive advertising practices
- It’s a low-quality product or service
- Outrageous product claims
- Pressure to stock up on inventory or “buy-in”
- Joining fees, monthly dues, or other on-going expenses
- Poor business reviews and ratings
- Lots of results when you type “company name” + “scam” into Google
These are just a few things to watch out for. The easiest way to avoid MLMs and pyramid schemes is to trust your gut instinct. As the saying goes, if it looks like a scam and smells like a scam, it’s probably a scam.
Please, please don’t fall for it!
Whatever you do, PLEASE DON’T GET INTO MULTI-LEVEL MARKETING. You’ll waste your money. You’ll lose friends and strain relationships with your family. Need a stat for proof? According to a report published by Pyramid Scheme Alert, over 99% of participants who try MLMs LOSE MONEY! In the same report, which looked at data across 11 different MLMs, about 60-90% of all participants eventually quit.
Sadly, courts often rule in favor of MLMs like Mary Kay and Avon when their distributors try to sue over lost money or lifetime savings. And just like in many industries, if you pour enough money into politics and fighting legislation, you can control the success or failure of your industry. The MLMs of the world still have a stronghold and aren’t going anywhere. Worst of all, an estimated $10 BILLION per year is lost by US consumers due to MLMs (and internationally that figure is much higher).
My main philosophy is this: If your product or service is so great, why should you spend all your time trying to get other people to join your team? Why not just sell me your product? If Mary Kay or Avon or Advocare is so amazing, why can’t I buy the product at its lowest price on their company websites? Unfortunately there are tons of people out there who live and breathe the MLM life. If you’re one of those people, you’re never going to convince me it’s a worthwhile business opportunity. I just hope you can sleep well at night knowing what you’re up to and how you make a living.
As a final thought, if you need a deeper dive on the shady, seedy world of multi-level marketing, watch John Oliver’s Last Week Tonight episode on MLMs. Its highly informative (and funny, too).