Definition Of A Pyramid Scheme

Most pyramid schemes try to disguise themselves as legitimate network marketers and, therefore, make it difficult for the untrained eye to tell the difference. One of the biggest indicators of a pyramid scheme is their lack of product. If you cannot buy their product or service without paying an entrance fee, then it is a scam. These fees may be called many different things to hide their true nature, but a fee by any other name is still a fee. If only a broker, consultant, affiliate, or any of the hundreds of names used to describe them, can buy the product or service then the company is not legitimate. In a legitimate MLM company, a customer can purchase the product or service for nothing other than the price of the item. Scams have no product or customer base to generate revenue, everything is pay to play. U.S. Securities and Exchange Commission defines a pyramid scam on its website:
In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.
The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.

The legitimate network marketing company depends on its customer sales to make them money. The majority of its revenue comes from the sale of its product or service, not the fees generated by new brokers. Network marketing is the vehicle the company uses to promote its products it is not the product itself. Although brokers, affiliates, or consultants, are generally customers themselves, they must be a small percentage of the customer base for the system to work. The majority of customers in this type of system are the same as consumers of any traditional business. They pay for what they get and not for the privilege of being allowed to get it. After all, the business of network marketing companies is to sell a product or service.
An MLM business is just that, a business. As with any business, the new owner has to pay the start-up expenses. The MLM business sells you a franchise and all that it entails. Though each company varies to a certain degree, there are things that need to be purchased for your business to work. Many companies have start-up packets filled with training, literature, and samples of the product you will sell. These packets are designed to help you succeed in your new business.