Questions For Spotting Pyramid SchemesSpotting pyramid schemes among hundreds of network marketing opportunities can be difficult. A talented con-artist can disguise an illegal pyramid and fool even cautious investors. If you're having difficulty discerning between legal and illegal marketing structures, try considering the following. If a multi-level-marketing fails to pass these tests, it may be best to avoid joining. In the end though, you must use your own judgment to decide whether the opportunity is a scam. Is there a product or service?This is perhaps the most obvious question to ask, and it is the easiest way of spotting pyramid schemes. If new members are simply handing over money to recruiters and other members, then the system is most likely a pyramid scheme. In this situation, the pyramid is sustained solely form the investments (or gifts, in the case of illegal gifting circles) of new members. Because of this, the pyramid will inevitably fail and collapse –
as shown by these examples of pyramid schemes.
If the opportunity does provide a service or product, ask the following question. It will further aid you in spotting pyramid schemes. How do participants make money?This is an important question. A legitimate marketing system should be making the bulk of its earnings from the general public. Pyramid schemes members, however, earn the bulk of their money by selling to members below them in the hierarchy. Even though there is a product, the pyramid can only be sustained by new members buying from existing members and recruiters. Because of this, the pyramid must constantly recruit new members to keep sales mounting and cash entering the pyramid. Despite having a product, it will fail just like pyramids without products. Two things to help determine whether profits come from within or without the pyramid.The first is inventory loading. Inventory loading occurs when new members are required to buy more inventory than they could possibly hope to sell. Then, despite not having sold what they already purchased, they are pushed of forced into buy even more inventory. This would suggest that money is primarily being earned by selling to lower/newer member – not from outside sales. Legitimate marketing opportunities, however, typically abide what is known as the 70% rule. The 70% rule is a measure devised to prevent higher ranking members from flooding the lower ranks with more products than they can possibly hope to sell. The rule states that 70% of a member's inventory must be sold before he or she can buy additional products. Inventory loading is thus kept in check. The second factor to consider is the product or service itself. Is it priced fairly? Is it competitively priced? Seeing as how legitimate marketing systems should be sustainable without a member having to recruit new members, it should be possible to earn a living solely from selling the product to the general public. This does, of course, require that the product be marketable. Its price should be competitive and accurately reflect its actual worth. Products too highly priced may be difficult to impossible to sell to the public. The only sales that may result from such products could be internal (inventory loading). The dividing line in the gray area of legal and illegal marketing schemes could ultimately boil down to the point of whether or not the pyramid is economically sustained by members' money or by public sales. Remember, even if a recruiter swears up and down that the system isn't an illegal pyramid scheme, don't simply take his or her word for it. Consider the above, ask questions about the product, sales, and structure. Spotting pyramid schemes before you're trapped by one is your ultimate goal. Retrun from Spotting Pyramid Schemes to Pyramid Schemes Page
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