August 16, 2014

Better Business Bureau tips for avoiding pyramid schemes

How consumers can recognize the characteristics of a pyramid scheme and how they can avoid one.

Before you sign on to that new business venture, be sure it’s a square deal and not a pyramid scheme. Multilevel marketing plans have been successful for some over the years and will doubtless continue to be. Pyramid schemes can look, at first glance, like legitimate multilevel marketing businesses.

The Better Business Bureau urges investors to learn the difference for at least a couple of very good reasons: Pyramid schemes are illegal, and you could lose large amounts of money to the scam.

The Federal Trade Commission reached a settlement in May with Fortune Hi-Tech Marketing, a company charged with operating a pyramid scheme. The company had scammed more than 350,000 people out of $169 million. It had been called one of the most prolific pyramid schemes operating in North America.

It was not the first such scam, and it will not be the last. That is why it is vital that consumers learn to recognize the characteristics of a pyramid scheme and how they can avoid them.

Multilevel marketing

Sometimes called network marketing, multilevel marketing is a sales system in which the sales force members receive compensation for their own sales as well as for those of people they have recruited into the company. Sales are usually done through word-of-mouth marketing rather than through a retailing site.

Although there are many who say all multilevel marketing systems should be avoided, they have been around for decades. When a company’s sales strategy crosses the line into being about recruiting instead of actual product sales, it is probably a pyramid scheme.

What to ask

To determine whether a company you are considering joining is a pyramid scheme, ask the following questions:

Will I make money mostly from recruiting others instead of from selling the product?

Do the product’s promises sound too good to be true, and does it seem to be overpriced?

Am I being pressured to join?

Is there more emphasis on the “opportunity” as opposed to the value of the product?

Is the company promising large profits for little work and minimal experience?

What is the real marketability of this product, and is there a similar yet cheaper product in competition?

Answering “yes” to any of these questions indicates you are about to dive into a pyramid scheme.

Dig deeper

Take the time to do the following if you are still on the fence:

Refuse to sign anything at the “opportunity meeting.” Exercise your right to think it over and talk about it with people you trust, including an accountant or attorney.

Consider the way you were recruited and how it would feel to do that to your friends and family. Relationships have been ended over such.

Be sure you could survive off of your own sales. If it will take recruitments to get a livable income, that is a pyramid scheme.

Assess whether your area is already saturated with sales.

Check out the company with the BBB.

Do a Web search on the company and drill deeply into the results to form an educated opinion about its legitimacy.

Legitimate companies will give realistic assessments of the opportunity, including risks, rewards and challenges. Pyramid schemes will regale you with amazing success stories and claim little effort is required.

We at the BBB will recite our mantra once again: If it sounds too good to be true, it probably is.

Contact the Better Business Bureau at 800-856-2417 or visit bbbinc.org.

Related content



Editor's Choice Videos