How pyramid selling works
Pyramid selling schemes are based on recruiting people rather than selling valuable products to customers.
For all members to make a profit there would have to be an endless supply of new members.
In reality, the number of people willing to join the scheme - and the amount of money coming into it - dries up very quickly.
When the pyramid collapses, and they all do, relationships, friendships and even marriages can be destroyed over money lost in the scam.
Even if the scheme does sell a product, it may still be pyramid selling as the products are usually overpriced, of poor quality, difficult to sell or of little value.
If a pyramid scheme reaches court, the court will look at the value of the product versus the cost to join, as well as payments for recruiting more members.
Pyramid selling schemes are bad business because the scheme requires you to recruit new participants who will be doing the same thing you are - selling the same product and trying to recruit new members.
These people are your competitors. No-one in legitimate business wants competitors.
In real business, you would pay to have exclusive rights to a product or an exclusive territory.
In pyramid selling, you recruit competitors from the people nearest to you, such as family and friends, who may have normally been your best sales targets.
You’ll face pressure to buy more and recruit more, turning your family and friends into prospects.
Last updated: 11 June 2015