"A pyramid scheme is simply recruiting distributor-members only for consumption, and not for the retailing of the product." - Brett Rademacher

As a person out talking to people about my whole food based nutritional product and sharing with people how they can make extra money with a Uri International network marketing home business, I sometimes encounter a prospect who asks a very good question. That question is, "Is this some kind of pyramid scheme?"

When I first got started, that sincere question felt more like an objection of unbelief and doubt that I had to find a way to overcome. It put me on the defensive a bit. However, now that I have learned more about what a true pyramid scheme is, I feel totally different when asked that question. Now, I actually look forward to that question coming up because I can explain the difference between what a pyramid scheme is and what I'm offering people through my home business opportunity.

Before I share what a pyramid scheme is, I want to look at the reason why people ask that question. The more I have pondered this question, I believe that the fear of being deceived and taken advantage of is behind this question. Almost everyone knows someone who has been deceived and swindled by someone in a business deal that turned out to be some kind of "scam." And no one that I have ever met likes being scammed out of their hard earned money. As a result, people have their guard up and are afraid of being deceived and "scammed" by someone proposing a business opportunity that looks and sounds great, but in reality is just one more way of deceiving the person and taking their money.

Here's an example that just happened to me about a week ago. A friend gave me an email address and a name and said that this certain company was hiring people to help broker the sale of art and that the pay was lucrative. I emailed the person, and they sent back a message saying that they were looking for someone to receive payment from their art customers, who would then deposit those payments into their own bank account, keep a salary of $2,500 per month, keep a 2% commission fee of the total art sale, and then wire the rest of the money to the company. To get started, all they wanted was for me to email back my name, address, phone number, etc.

My first response was that it sounded like a really great job, almost too good to be true, so I emailed the contact person again and asked for more information about their company, phone number, address, website, etc. The contact person emailed me back a suspicious looking Post Office box address and a phone number, said their website was down and under construction, and basically evaded all of my important questions. At that point I got even more suspicious, even though I really wanted the offer to be true because it sounded so easy to make a lot of money doing almost nothing. When I shared the information with my wife, it became obvious right away that it was some kind of scam. "It's just too good to be true," she said. In the end, I never really got any information about the company or what their products and/or services were, and the whole email communication seemed very suspect and left me feeling like I was in the dark. At that point I also remembered being warned about scammers from Africa that ask for your bank account information so that they can transfer money through your bank.

WHAT IS A PYRAMID SCHEME?

According to Wikipedia, a pyramid scheme is "a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered." Pyramid schemes are illegal in many countries, including the United States. The feature that is most distinguishable in these schemes is that the product being sold has little or no intrinsic value of its own or is sold at a price out of line with its fair market value. For example, this could include so-called "products" such as cassette tapes, brochures, seminar materials or systems which merely explain how to enroll new members. The result is that only a person signed up in the scheme would buy it and the only way to make money is to recruit more and more people below them that are also paying more than they should.

KEY DISTINGUISHABLE FEATURES OF PYRAMID SCHEMES

1. New distributors are trained to recruit many other people only for consumption or purchase of the "product," rather than for reselling to non-enrolled consumers. In other words, the only real "customers" of the so-called product are other enrolled members. There's no real and actual retail sales going on out in the marketplace. There are no real retail customers buying a legitimate product or service.

2. A tendency for only the early ground-floor members to make any real money.

3. Very little information is offered about the company to prospects until after they purchase and become a member.

4. There is either no product being sold, or there is information or knowledge or a system being sold at a ridiculously inflated price unrealistic in the marketplace. The product itself is described using a very vague and unspecific description.

5. A compensation plan that depends primarily on the commissions earned for signing up new members or the purchase of products by enrolled members for their own consumption or use, rather than for sales to legitimate customers who are not members of the company.

6. An exciting hyped up sales pitch that appeals to greed and materialism.

7. Assurances that the company and the business opportunity are perfectly legitimate.

WHAT'S THE DIFFERENCE BETWEEN NETWORK MARKETING (MLM) AND PYRAMID SCHEMES?

Legitimate network marketing (MLM) companies offer their distributors the opportunity to earn a meaningful income by selling the product (or service) to customers who are not themselves enrolled in the business. In other words, the company is built upon a real product and real retail customers who are buying the products for their own consumption. The foundation of the compensation plan depends entirely on the sale of the product to real customers. Most true network marketing businesses operate by recruiting distributors to sell a product and by offering bonuses and sales commissions to those distributors based on the gross volume (GV) of other distributors that they recruit to sell the products (aka, their "downline").

Here's an example from my network marketing business with Uri International. We have a bunch of whole food based nutritional products and supplements that we sell directly to the public for retail profits, and we get paid a commission on all of the sales of our downline through 9 levels.

Retail commissions are the basis of every true network marketing company. Our master distributor and marketing director, Brett Rademacher, is training our sales organization to be retail driven. He knows that true long-term residual income is made by having many retail customers on "autoship," who are buying and using the product every month. Without this critical element, residual income is only a dream that will never materialize. Because of this fact, Brett has designed radio coops and television coops to help our distributors get the word out about our incredible nutritional products, and thereby build a huge retail customer base for our products. This is the only way to truly succeed in the network marketing industry.