Around the world, economies are faltering, and people are struggling with day-to-day expenses. Being under constant financial pressure makes it easy for many of them to fall victim to schemes that seem incredibly appealing but only deepen their financial problems. Pyramid schemes, which often masquerade as legitimate MLM companies, have been a constant menace in the financial world, as these structures latch onto people’s dreams of financial independence by luring them with false promises of profitable returns for minimal effort. However, underneath the rosy picture they paint is a cesspool of broken dreams, exploitation, and manipulation.
Thanks to social media, MLM distributors have an extensive outlet to market their brand. So instead of having an in-person conversation, the distributor can simply upload a video to social media to reach a large audience.
The Difference Between Multi-level Marketing Companies And Pyramid Schemes
MLMs are basically legitimate businesses that focus on moving products to consumers. Distributors earn commissions on the sales they make. As an aside, they may also recruit others to become company agents and earn a percentage of the income generated by those agents.
A pyramid scheme generates income by recruiting new members who must pay a startup fee. The benefits of recruiting members in MLMs lie in earning commissions from their sales, but the organization’s goal is still to move the product. Many people argue that all MLMs are pyramid schemes because of their structure and because distributors often purchase most of the products themselves, rather than selling to legitimate customers.
But, MLMs Are Legal
The most common argument put forth by MLM supporters is that while pyramid schemes are illegal, MLMs are not. However, just because the law hasn’t classified something – yet – does not mean it’s all good. If the goal is to earn commissions on sales, there are far better ways to do so, such as affiliate marketing.
An MLM’s structure is inherently designed to incentivize members to recruit others. Essentially, if you get it early enough and manage to recruit a group of people, you can sit back and earn massive amounts of income on the hard work of others.
If this sounds appealing to you, flip the coin and see it from the other side. If you don’t manage to get in early, you are at the bottom of the food chain. No matter how hard you hustle, you are likely only to lose money or earn a minuscule amount while padding the pockets of your “upline” (the person who recruited you and the person who recruited them and so on up the pyramid). MLMs peddle predatory practices, starting from the initial lies and lovebombing to the inherent gaslighting later on.
Pyramid schemes that masquerade as MLM companies sell a fantasy by tempting you to explore an opportunity for a better life. They exploit your vulnerabilities and will likely leave you trapped in a pyramid scheme, with a side helping of debt and despair. Not only do they end up losing thousands of dollars, but they have also wasted their time and hard work, with only the damage to their self-confidence to show for it.
Mediocre or Hazardous Products
Most of the products in these so-called MLM companies are very commonly found in your grocery or convenience store. However, an MLM product comes from someone who thinks they are qualified enough to become your life or health coach, even though the only training they’ve had is a 2-hour Zoom call from their upline (who is most likely not qualified either). Of course, there is money in it for them, but they won’t tell you any of that.
Plus, a bottle of shampoo at the store will cost way less because it doesn’t include distributor commissions. When you buy an MLM product, your money has to be spread among the company, the person who sold it to you, the person who recruited them, the person who recruited the person who recruited the person who sold it to you, and so on.
Even those mediocre or obscenely expensive products seem forgivable when you consider the plethora of health and wellness MLMs that promise you the moon and the sun. Unregulated and unfounded health claims are rampant in the MLM industry, and have led to dire consequences such as long-term medical conditions and, in rare cases, even death.
How To Spot A Pyramid Scheme?
Here’s the thing: even though they may appear to look like legitimate business opportunities, pyramid schemes are scams. If you become a distributor, you and your recruits could lose money and time. Of course, the promoters of pyramid schemes will promise you great rewards and opportunities – but these are complete lies. In fact, these schemes are designed to encourage everyone to keep recruiting new members so money keeps flowing into the business.
Here are some common warning signs of a pyramid scheme:
- Promoters will make tempting and unrealistic promises of what you are capable of earning.
- In a legitimate MLM program, just selling the product is a way to make money. But promoters of a pyramid scheme will stress the importance of recruiting new distributors to build your sales network and make money.
- They will use high-pressure tactics to force you to act immediately or risk losing the opportunity. Remember, any company that pressures you to take action without taking the time to research and weigh your options is a huge red flag.
- You will be required to buy more products than you can resell or use to qualify for rewards or bonuses, or to stay in the company.
How Pyramid Schemes Are Ruining Lives
Most people fall prey to pyramid schemes because they create the illusion of opportunity. They promise growth, wealth, and the chance to become your own boss. For many people looking to escape the 9-to-5 grind, the prospect of financial freedom is very alluring. So when a charismatic recruiter hosts a lovely seminar showcasing a lavish lifestyle—luxury cars and vacations that could be yours —attendees will leave inspired and ready to invest their money, energy, and time in making it a reality by becoming part of the program.
Secondly, while pyramid schemes promise great returns, the money flows upwards. Meaning, the original recruiter and the top few participants reap the big rewards while most will struggle to recover their initial investment. As a result, the base becomes unsustainable, and recruitment will eventually stall. So when the pyramid collapses, most participants will lose money, and the blame will immediately shift to them for not recruiting enough or for not believing in the system. At the end of the day, pyramid schemes are master psychological manipulators that feed on emotions like greed, fear, and hope to keep participants invested. They operate by exploring human psychology and legal ambiguities, and the only way you can protect yourself from the allure of these false promises is by being vigilant and financially literate. Remember, if anything sounds too good to be true, it probably is!
