Is this a Pyramid Scheme
This question is one of the most mis-understood questions in the home based business industry. You will see people suggest that all kinds of companies are pyramid schemes, ponzi schemes, or scams. Yet they make these assertions often without understanding at all what actually defines an illegal enterprise.
I also find that people that ask this question fit into two categories. The first is a person who is dislikes anything to do with Network Marketing or home based business and label everything they see as a pyramid scheme just to throw mud. If you fit into this category, please don’t waste your time by reading this or my time by commenting on it. The second person is a person who may be interested, but want to make sure that what they are looking at is on the up and up. These people value there own integrity and honesty highly and don’t want to risk their reputation by aligning themselves with something that might come back to make them look bad. If that is you the information in this blog will be invaluable.
What is a Pyramid Scheme?
The SEC definition of Pyramid Scheme
This is from the government SEC website that monitors the industry you can find more information on this at http://www.sec.gov/investor/alerts/ia_pyramid.htm#.U4PcpCgVeKg
When considering joining an MLM program, beware of these hallmarks of a pyramid scheme:
- No genuine product or service. MLM programs involve selling a genuine product or service to people who are not in the program. Exercise caution if there is no underlying product or service being sold to others, or if what is being sold is speculative or appears inappropriately priced.
- Promises of high returns in a short time period. Be leery of pitches for exponential returns and “get rich quick” claims. High returns and fast cash in an MLM program may suggest that commissions are being paid out of money from new recruits rather than revenue generated by product sales.
- Easy money or passive income. Be wary if you are offered compensation in exchange for little work such as making payments, recruiting others, and placing advertisements.
- No demonstrated revenue from retail sales. Ask to see documents, such as financial statements audited by a certified public accountant (CPA), showing that the MLM company generates revenue from selling its products or services to people outside the program.
- Buy-in required. The goal of an MLM program is to sell products. Be careful if you are required to pay a buy-in to participate in the program, even if the buy-in is a nominal one-time or recurring fee (e.g., $10 or $10/month).
- Complex commission structure. Be concerned unless commissions are based on products or services that you or your recruits sell to people outside the program. If you do not understand how you will be compensated, be cautious.
- Emphasis on recruiting. If a program primarily focuses on recruiting others to join the program for a fee, it is likely a pyramid scheme. Be skeptical if you will receive more compensation for recruiting others than for product sales.
Now that you have the facts on what separates legitimate home based business companies of ones of questionable legality you can move forward confident that your good name is protected.
Success to You,
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