Pyramid Scheme

What Is A Pyramid Scheme? 

A pyramid scheme is a money-making scheme where participants recruit more people to join to earn more. 

Deeper Definition 

A pyramid scheme is a business model that requires participants to recruit new people to make money. New members also need to recruit their underlings to earn, and so on. As the circle of recruiting continues, it gets to a point where recruiting becomes impossible, which makes the scheme unprofitable anymore for members, mostly newer members.

Pyramid schemes are often mistaken for “multi-level marketing” vice versa. Multi-level marketing is a marketing strategy requiring you to sell a company’s products to family and friends and recruit other people to do the same. In genuine MLM companies, participants can make money by:

• Selling the company’s product and making a profit from sales.

• Recruiting people to serve as distributors and earn commissions on their sales.

On the other hand, pyramid schemes often do not offer any other way of making money aside from recruiting people. It relies on the fees new members pay to settle older participants. However, some pyramid schemes disguise and parade themselves as MLM companies. You may identify pyramid schemes through the following ways:

• They promise a high return on investment in a short period.

• They have no genuine product or service to sell.

• Their focus is solely on recruiting new participants, even when they have a product.

• It is promoted as a way to earn passive income.

• Recruits pay a fee or buy some products.

Pyramid schemes appear enticing to most people looking for a way to make money faster; however, in all cases, it ends in one way – most participants lose their money.

Pyramid Scheme Example

More Wins is a new money-making platform where members pay a one-time $2000 to join and earn a monthly commission for life. The commission rate varies depending on a member’s level, and the higher the level, the higher the commission rate. A member would pay an additional $1000 per level and recruit ten underlings who must pay the general starting $2000 fee to climb up the ladder.