Tips From BBB To Identify Pyramid Schemes

Illegal Pyramid Schemes


Cookware, makeup, lotions and potions, supplements, candles, essential oils, jewelry and the list goes on. All are products sold by companies whose business models include sales via word of mouth and home-based parties.

If you attend the party, you’ll be invited to join the company and to join the thousands — maybe even millions! — of others who found financial freedom as a company consultant.

But you may be wondering how multi-level marketing companies, which are legal, are different from pyramid schemes, which are not. Here’s the answer: If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. Instead, it's a pyramid scheme, according to the Federal Trade Commission.

Better Business Bureau Serving Northern Colorado and Wyoming and the FTC offer these red flags to help you identify a potential pyramid scheme:

• Recruit, recruit, recruit. If your income is based predominantly on how many people you recruit into the program, not how much product you sell, it’s a pyramid scheme.

• Buy our product, lots of it. Many pyramid scheme operations require participants to buy the product or other items to stay in good standing with the company.

• Live the lavish lifestyle. The recruitment pitch says you’ll be living in the lap of luxury. It fails to tell you most people in a pyramid scheme lose money.

• Oftentimes new recruits are encouraged to sign agreements or contracts on the spot. Take your time. Ask your sponsor and other distributors tough questions, such as:

• What are your annual sales of the product?

• How much product did you sell to distributors?

• What percentage of your sales were made to distributors?

• What were your expenses last year, including money spent on training and buying products?

• How much money did you make last year – that is, your income and bonuses, less expenses?

• How much time did you spend last year on the business?

• How long have you been in the business?

• How many people are on your team?

• What percentage of the money you’ve made — income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?

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