Is it a Legitimate Opportunity or a Pyramid Scheme?
Many people have found success in direct selling for companies which use a multi-level compensation plan. Unfortunately, not all opportunities are legitimate, and it’s easy to get caught up in the enthusiasm and big promises of a pyramid scheme posing as a trustworthy company. So how do you tell the difference? BBB provides consumers with information to help determine whether or not a company is trustworthy.
August 08, 2014

Is it a Legitimate Opportunity or a Pyramid Scheme?

Many people have found success in direct selling for companies which use a multi-level compensation plan. Unfortunately, not all opportunities are legitimate, and it’s easy to get caught up in the enthusiasm and big promises of a pyramid scheme posing as a trustworthy company. So how do you tell the difference? BBB provides consumers with information to help determine whether or not a company is trustworthy.

What is a Multilevel Marketing Plan? Multilevel Marketing is a method to sell goods and services through other distributors. These plans promise that if you sign up as a distributor, you will receive commissions from sales you make, as well as sales of the people you have recruited as your distributors. On the contrary, a pyramid scheme’s commissions are primarily based on the number of distributors recruited and generally ignore the marketing and selling of products and services.

The difference between these two plans can seem unclear, but there is one key distinction – MLM’s are legitimate, and pyramid schemes are illegal, so it’s very important to do your homework.

The BBB offers the following questions to ask before deciding whether or not to join an MLM:

  • Does the compensation come primarily from recruiting others as opposed to the sale of the product?
  • Does the product or service seem too good to be true, and is it priced at an expensive rate?
  • Do you feel pressured to join? Is the emphasis placed on the “opportunity” rather than the value of the product?
  • Are there promises of large profits for minimal work and little experience?
  • What is the marketability of the product? Is there a similar product on the market for less money? 

If you answered yes to any of these questions, you are probably looking at a pyramid scheme.  While a Multilevel Marketing Plan can be a legitimate and exciting new venture, the bottom line is, do your research as you consider a MLM opportunity. It could be a pyramid in disguise.

Here are some tips to consider before you make your decision:

  • Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or an attorney.
  • How do you feel about the way you were recruited and do you feel comfortable approaching friends and family in this same manner? People don’t appreciate having their friendship exploited, this usually ruins relationships.
  • Beware of those that don’t command the respect themselves and lean on the credentials or character of others.
  • Can you survive off of the sales of the product without recruiting other distributers? Pyramid schemes survive by pulling in new distributers and little attention is placed on the product.
  • Realistically, how many people can be enrolled in any given area before saturation occurs?  If everyone in your neighborhood is selling hamburgers, then pretty soon it is going to be difficult to sell hamburgers.
  • Check any company or opportunity out with the BBB before joining.

 Keep in mind, a legitimate company will portray an honest picture of the opportunity, including the possible risks, rewards, and challenges. A pyramid scheme, however, will enthusiastically sell you on the promise of making tons of money with very little effort. Unfortunately, self-deception is the hardest to recognize so take the time to research thoroughly before getting caught up in the hype.