Am I in a Multi-Level Marketing Pyramid Scheme?

Everyone has heard of a company or product that is part of a multi-level marketing (MLM) pyramid scheme, but they might not know it. These companies recruit individuals to sell their products with the promise of making a commission off their sales. Many people find MLM alluring since the brand will boast how lucrative it can be selling its product.

To join, MLM with a pyramid scheme requires payment and inventory purchase from the recruit to get started. To make a profit, the recruit has to find ways to push the product, whether it be online sales, spending their time at local markets, while also convincing others to join as a recruit.

This is where the term pyramid comes into play. Every new recruit a person adds to the MLM earns them incentive pay. As the cycle continues and those recruits add new recruits that in turn add newer recruits, the original recruit pushes further and further up the pyramid. The higher up you are, the more money you make. So the real business profit is not by selling products but by collecting the money put into the MLM from new distributors.

The top layer of the pyramid that makes the unrealistic profit is used as an example to lure people in. With promises of 6+ figures for a monthly income, free trips or gifts, and other bonuses, it’s hard for many people to justify not joining. The dangers with this business model are that the lower the recruit is on the pyramid, the more likely they are to lose money, or if the scheme collapses, the people towards the bottom lose any money they put into the MLM. Pyramid schemes will typically collapse once their main profit, new distributors, is exhausted.

When looking into a new commercial venture, be sure to research the brand using sites not affiliated with the business’s website and lookup individuals reviews. Make sure the MLM you are joining doesn’t require you to recruit new distributors; if so, this is a pyramid scheme. For more information on how to spot a pyramid scheme or to find out if MLM is the way to go for you, visit the Federal Trade Commission website. They have a ton of tips and information to help you make the best decision for your situation.

Another idea, start your own business. You get all the perks of being your own boss and selling a product you believe in without the added stress of pushing for recruits. Best of all, Resource One has everything you need to get started with our commercial line up of accounts, loans, and services.

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