A pyramid business is actually a business scheme or a business model where people add members via a promise of payments or services for enrolling others into the business. Usually, in a pyramid business, the company makes all their profits from signing up new recruits and often attempt to disguise entry fees as the price charged for the product, service, training, etc. The problem with a pyramid business is, it is unstable and considered illegal in many countries. Some multi-level marketing plans are also classified as pyramid schemes.
Starting a pyramid business is very easy. First, you have to find a suitable product that has high demand in the market. Then create a suitable payout structure and financial fantasy among the customers. Now start recruiting people and teach them your business policies. You have to maintain this cycle: the training, attempt, failure, and event loop.
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- 1 Types Of Pyramid Schemes
- 2 FAQs About Pyramid Business
Types Of Pyramid Schemes
There are different types of pyramid schemes available. Let’s check them out!
Multi-Level Marketing Pyramid Scheme
Multi-Level marketing is also known as MLM is a type of pyramid scheme that involves the sale of actual goods or services. This is not like the typical pyramid schemes and participants are not mandated to sell anything to generate income. Some MLMs are really hard to distinguish from the pyramid scheme because they involve the sale of printed materials that have no real value, for example, different types of training courses.
The “Eight Ball” Model
This pyramid model is the simplest of all because in this model a person must recruit two others, who must each recruit two others, and so on. In this model, total 15 people in four tires (1 + 2 + 4 + 8). The eight persons from the last tire should pay an amount of money to join the plan. The single person on the first tire will earn the highest amount of money while other people in the 2nd and 3rd tire will get a small amount of money. Once there are new recruits, the people on the 4th tire will get the commission.
This model is quite similar to the eight-ball model but it tricks one person by claiming to turn $100 into $800. This model actually flattens the pyramid into a circle therefore this model is known as Loom. In this model, each person has to recruit 2 people without providing them with any service or product. This pyramid scheme is illegal in most US cities.
This model also uses the same fraudulent, unsustainable system as the pyramid scheme. In this model, a participant joins a waiting list for a desirable product, which only a fraction of them can ever receive. This scheme follows the laws of geometric progression so there are chances it will collapse. In this model, each person has to buy an expensive but potentially worthless item. This type of scheme also collapses when no more people are willing to join the queue.
Characteristics Of A Pyramid Business
There are a few common hallmarks of a pyramid scheme. These characteristics will help you identify whether it’s a pyramid business or not. They are:
1. If a business or business module emphasizes recruiting others to join the program for a fee then it’s likely a pyramid business
2. If a business doesn’t sell a genuine product or service then it’s a pyramid business
3. Pyramid business promises high returns in a short time period
4. There will be no demonstrated revenue from retail sales in the pyramid business
5. A pyramid business usually has a complex commission structure or the payment method
FAQs About Pyramid Business
What Are Some Multi-Level Marketing Companies?
Multi-level marketing is also known as direct marketing, network marketing, referral marketing, and pyramid selling. Some renowned multi-level marketing companies are:
Amway Global, previously known as Quixtar
The Body Shop
Forever Living Products
Fuel Freedom International
USANA Health Sciences
World Financial Group
National Safety Associates
Nature’s Sunshine Products
Neal’s Yard Remedies Organic
Nu Skin Enterprises
Rodan + Fields
Which MLM Company Is The Best To Join?
Below is a list of the 50 best MLM companies in the world. They are
|Avon Products, Inc.||$4.76 B||1986|
|Mary Kay||$3.60 B||1963|
|Nu Skin||$2.40 B||1984|
|Forever Living||$2.40 B||1978|
|Young Living||$1.90 B||1993|
|JoyMain Int.||$1.58 B||2010|
|Rodan + Fields||$1.50 B||2007|
|Oriflame Cosmetics||$1.47 B||1967|
|Ambit Energy||$1.31 B||2006|
|DXN Marketing Sdn Bhd||$1.25 B||1993|
|O Boticário||$1.20 B||1977|
|Team Beachbody||$1.10 B||1998|
|Telecom Plus||$1.08 B||1996|
|USANA Health Sciences||$1.06 B||1992|
|Yanbal International||$885 M||1967|
|Market America||$837 M||1992|
|Stream Energy||$800 M||2005|
|OPTAVIA / Medifast, Inc.||$714 M||2002|
|Arbonne International||$672 M||1975|
|Juice Plus+||$660 M||1993|
|Team National||$651 M||1997|
|It Works!||$590 M||2001|
|Amore Pacific||$585 M||1945|
How Do Pyramid Schemes Make Money?
A pyramid scheme usually makes money based on the recruiting of “investors.” Here the first investor recruits another investor who then recruits more investors and the process goes on. This business scheme is very unstable because if the supply of investors becomes off then the earnings will stop automatically.
How Long Is Jail Time For A Pyramid Scheme?
In the USA, recruiting people to participate in a pyramid scheme is considered a felony crime and it is punishable by up to four years in prison or up to a $5,000 fine or both.
Who Invented The Pyramid Scheme?
Charles Ponzi invented the pyramid scheme. Charles Ponzi was an Italian swindler and con artist in the U.S. and Canada. He was born on March 3, 1882, and died on January 18, 1949.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.