The term pyramid scheme is one of those phrases that most people have heard of, but they might not be able to fully explain. Unfortunately, this lack of understanding may inadvertently cause honest and well-meaning people who are simply looking for a way to earn some extra money to get involved in one of these scams.
In addition, if you get the sinking feeling that you accidentally signed up for one, you should know how to get out of it and what resources are available. Finally, it’s a good idea to know when and why some completely legitimate businesses are incorrectly lumped in with the pyramid scheme group when in reality they are definitely legitimate.
With all of these important points in mind, let’s take a closer look at pyramid schemes:
Pyramid Schemes 101
The classic pyramid scheme involves making money solely by recruiting new people to join the company. No product or service is usually sold in a pyramid scheme, and the person behind it loves to crow about how much money you can make in a really short amount of time.
If you are told that you will earn money once you recruit X amount of people to join the same program for a hefty fee, it is probably a pyramid scheme. Another major red flag is if you are told you will get a lot of cash by doing very little work—for example, by placing online ads or making payments—this is also a sign of a pyramid scheme.
Pyramid Schemes, MLMs, and Direct Sales
People often lump multi-level-marketing (MLM) companies, direct sales companies, and pyramid schemes into the same dishonest group. But as the Attorney General for the State of New York notes, MLM and direct sales companies are not dishonest ways to make money. In the case of a legit MLM, you sell reliable products or services, and any recruitment of new people is a secondary goal. As for direct sales jobs, they often involve only selling products to others, with no emphasis on getting other people to join the company.
A classic example of a completely legit direct sales company that is often mistaken for a pyramid scheme is Amway. Although more than three million Independent Business Owners around the world make money with Amway by selling the company’s products to others, the pyramid scheme myth has persisted. In response, Amway wrote a blog post about pyramid scheme facts that explains how their IBOs do not earn a dime by bringing in more people to sell for the company, and how they only make money when products are sold.
How to Get Out of a Pyramid Scheme
The easiest way to avoid being in a pyramid scheme is to not get into anything that sounds too good to be true. Whenever you sign up for any type of work-at-home job, get the company’s marketing plan in writing, along with info on their sales program and contracts.
If your contact is reluctant to give you this information, do not sign up for the program as it may be a pyramid scheme. If you have accidentally signed up for one, tell your contact you have changed your mind and ask for a full cash refund; you might also want to alert your bank to be on the lookout for any automatic payments you have inadvertently signed up for as part of the scam.
Empower Yourself with Knowledge
Now that you have a solid grasp of what a pyramid scheme is, and is not, you will be well-equipped to just say no to any and all scams that may come your way. At the same time, if you want to take on a side hustle, you know that direct sales gigs are a reputable way to earn money without any recruiting work.