Updated: Jan 18, 2020
We’ve all come across them, those companies that promise an easy way to make an income from the comfort of your own home. All you have to do is throw a party, invite your friends, play a couple of games and get your friends to buy some products. What we don’t often realise however is that selling these products is not how the money is made. It’s by getting commissions for recruiting your friends to host parties that you’re meant to become successful. What we don’t get told is that most few of us will be winners by getting involved with these brands. These multi-level marketing schemes or MLM’s for short are almost indistinguishable from pyramid schemes. To find out how these schemes work and why you should avoid them like the plague just keep reading.
What’s a pyramid scheme?
The real money as we’ve mentioned does not come from selling homes wares, lingerie, alcohol, skincare, cosmetics, and/or nutritional supplements. It comes from recruiting others, often unsuspecting family members or colleagues, so that they too will invest in the business. The initial outlay can be quite significant, for example, $5,000 with the promise of making eight times that amount if you follow their training to a T. Usually this training is in a convivial setting of a suburban loungeroom but sometimes it’s delivered by phone, e-mail or seminar in an event space. The sales pitch makes it seem great and the answer to your prayers.
Figure 1: Delivery Method of Pyramid Schemes For 2018 (ACCC, ScamWatch, 2019)
Figure 2: Delivery Method of Pyramid Schemes For 2019 (ACCC, ScamWatch, 2019)
Some sobering facts…
It’s often said that if it sounds too good to be true that’s probably because it is. If the initial investment seems rather steep, if the profits you’re meant to be making are staggering, if the entire process seems too easy, there’s a reason for that. If the benefits of the products or services you’re meant to be selling seem to be excessive, there’s a reason for that. If the price of the products or services you’re meant to be selling are vastly inflated, there’s a reason for that. The facts aren’t pretty. In 2018, it’s estimated that a shocking AU$607, 030 was lost due to pyramid schemes and in the months of January and February, alone another AU$84,000 was lost.
As we’ve seen, success is meant to arise from recruiting others. Each person recruiting, say, 10 people and all these people believing that they will see a profit from all the hard work they are putting into the business. The reality is that “the scheme simply banks on more and more contributions from an ever-increasing number of people at bottom levels” (Shobhit Seth, 2018). In fact, in an effort to try and qualify for incentives or rewards some members resort to stockpiling products usually in their garages, hence the term, garage qualified (catalystmlm, 2018). Lots of stock but no sales means there is far more money coming out than going in.
Watch this… For more information on specific cases experienced by others not just in Australia but overseas I’d recommend watching the following YouTube videos:
‘Don’t do MLM Kids! LuLaRoe is a scam’ by Tricky Crayon
‘Multilevel Marketing’ on Last Week Tonight with John Oliver (HBO) Link: https://www.youtube.com/watch?v=s6MwGeOm8iI
‘Why MLM Looks Like a Scam & Most Never Make Money’ by Lisa Irby Link: https://www.youtube.com/watch?v=iYJgYQbpJec
‘MLM Scam Alert! How to Spot a Multi-Level Marketing Pitch’ by Melissa Blevins
'WHY I HATE MLM's a rant' by Emily Anne
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List of references
MLM Glossary – M, 2018, ‘Garage Qualified’, viewed 10 March 2018, http://catalystmlm.com/mlm-glossary-g/ Australian Consumer & Competition Commission, 'Pyramid Schemes', viewed 10 March 2018, https://www.scamwatch.gov.au/types-of-scams/jobs-employment/pyramid-schemes
Shobhit Seth, 2018, “What is a pyramid scheme?”, viewed 10 March 2018, https://www.investopedia.com/insights/what-is-a-pyramid-scheme/
Cridland, M. 2018, ‘Pyramid Schemes’, viewed 10 March 2018, https://www.choice.com.au/shopping/consumer-rights-and-advice/your-rights/buying-guides/pyramid-schemes
Elliot, M. 2017, ‘5 Huge Companies Accused of Being Pyramid Scheme’s’, viewed 10 March 2018, https://www.cheatsheet.com/money-career/huge-companies-accused-of-being-pyramid-schemes.html/