Pyramid Schemes and MLM
Pyramid Schemes and MLM
Pyramid schemes are illegal businesses that con people out of money by promising them financial success. The organizers of pyramid schemes will usually try to pass off their business as a legitimate multi-level marketing (MLM) business. However, despite some similarities between pyramid schemes and MLM businesses, there are crucial differences.
In a pyramid scheme, a member must pay a fee for joining the business. Then, that member must recruit more members, who will also have to pay a fee. Pyramid schemes received their name because the business develops as a pyramid structure, with the original member on top, the people recruited by the original member on the second level, those people’s recruits on the third level, and so on. Members receive money from the fees of the people on the levels below them.
The problem with pyramid schemes is that eventually, they will run out of potential recruits. When this happens, the most recent members will not be able to make back the money that they paid in fees. For every successful member, there has to be a number of unsuccessful members who lose rather than make money. Therefore, pyramid schemes are considered fraud.
Despite the fact that pyramid schemes are illegal and destined to fail, people continue to join them for two reasons. First of all, the promised riches are extremely tempting, and people know that such riches are possible, even if they are unlikely. In this sense, joining a pyramid scheme is a lot like gambling, another popular past time. Secondly, the organizers of pyramid schemes try to disguise their business as a legal MLM business.
MLM businesses take on the same pyramid structure as pyramid schemes. However, MLM businesses actually sell a product. This is a very important difference. Because MLM members are selling a product, they have a source of continuous profits and a way to maintain the business. As a result, MLM businesses are not destined for failure. Additionally, MLM members need to spend a lot of time recruiting and training new sellers; success is not immediate and does take hard work, just as success in any honest business venture does.
Individuals who are considering joining a MLM business should research it thoroughly to make sure it is legitimate. People should also be wary of organizations that promise instant money with little effort; if it sounds too good to be true, it probably is.
By Richard Quek
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