I have good news for you. The majority of those who ask you this question do not know what a pyramid scheme is! They have a misconception, that when people do direct selling of goods or services through an organization where distributors can sponsor others to get benefits, it is a pyramid scheme, especially when the organization structure looks like a pyramid. The fact is, nearly all organizations only work effectively as a pyramid and are shaped like a pyramid. For example, in any big corporation, you may have a Chairman and CEO, and under that person, the President, followed by Vice Presidents, Managing Directors, General Managers, Assistant General Managers, Managers, Assistant Managers, Supervisors, Assistant Supervisors and the rest of the staff. Even Governments are structured this way. In the United States, there is President, followed by the Vice President, and then the Secretaries of the various Departments which form the Cabinet.

When we come to think of it, even traditional businesses also take the form of a pyramid, where there is the Wholesaler or National Distributor (one), who sells to the Area Agents (a few), who in turn sell to the Middlemen (a dozen or so), on to Retail Stores (many), selling to the Customers. If a pyramid scheme is what most people misconceive it to be, then we are all involved in pyramid schemes.

Insurance companies also work the way we do, where an insurance salesperson can also sponsor and get benefits from other sales agents, so how come they are never accused of being involved in pyramid schemes?

In order for you to be able to explain a pyramid scheme, you must first of all know what a pyramid scheme is. One of the first identifying features of such schemes is that they are designed to cheat people of their money, hence the public’s fear and loathing. How then do they cheat and how do we identify them?

The first thing all pyramid schemes will do is to insist that in order to become a member, there is a big registration fee and inventory loading. These schemes reward the sponsor an immediate ‘finder’s fee’ for getting a new victim. Most registration fees will be of the order of US$500 to US$3,000 but I have even come across one, where the fee was US$30,000.

Because a pyramid scheme is just a money game, the products are not important. Of course, it is very easy to find good products nowadays, so do not be surprised that many pyramid schemes also have excellent products. However, one thing I can guarantee you is that these products will be overpriced, as the emphasis is not in retailing of products to customers, but rather in finding investors to play the money game.

The easiest way to identify a pyramid scheme is where they have distributors but no customers, and the only customers they have, are distributors who buy those products because of their need to buy a distributorship to be involved in the scheme.

Other things to take note of, to help you identify pyramid schemes:

Before you answer this question, you must understand that some people like to sell and some do not. One of the mistakes some leaders make is in assuming that people who ask this question do not like to sell, when it can happen that a prospect loves selling because they are so impressed with the products. For this question, always ask, "do you like selling?” Then, if their answer is, “Yes”, your response can be, “Great, you will like this business, because we have over xxx products that you can sell.” Or, if the answer is, “No”, then you can say, “Great, you would like this business, because in MLM, we offer you a wholesale opportunity.”

This is one of the easiest questions to answer, as you can tackle it from several angles:

“Since we sell consumable products, there will always be repeat sales to ensure we do not have market saturation. Makes sense, doesn’t it?”

“Our company develops new products every year.”

“Every year in our country, there are xxx who reach an age to enter the job market (check the statistic in your country), so saturation is not possible.”

The figures below chart population growth from 1750 to the year 2000. It is interesting to note that in 1810, the world’s population was only 1 billion. By 1930, it had grown to 2 billion, by 1960 to 3 billion and in the year 2000, it stood at over 6 billion!

1810 to 1930 = 120 years = 1 billion to 2 billion = 1 billion increase

1930 to 1960 =   30 years = 2 billion to 3 billion = 1 billion increase

1960 to 2000 =   40 years = 3 billion to 6 billion = 3 billion increase

We can see that the population is growing at a faster rate than ever before and it is estimated that by the year 2020, the world’s population will be 8 billion people. China alone is growing at the rate of 60,000 each day, for a net gain of about 16 million people per year, so I don’t think saturation is a problem for us, do you?

“If you are worried about saturation, I have got good news for you. MLM is a business with no boundaries and our company is now opened in over xxx countries and our international sponsoring program is such, that you can now do business in all these countries. We will be expanding every year into new markets, so eventually the whole world of six billion people is your market. Watch out when we open up in China and India. These two big markets should interest you, don’t you agree?”

People sometimes question whether MLM is a business that benefits only people who join first, perhaps feeling that they may now be too late, or that they would be better served to join a new company.

Answers:

If ‘A’ sponsors ‘B’ and has only one line but ‘B’, because he/she worked very hard, has an organization with 5 lines, I can assure you that ‘B’ will make a lot more money then ‘A’. This is the beauty of an MLM business. It is fair and bonuses are paid to people who work hard and for their leadership ability, not because they joined first.

From my twenty years of experience, I would advise people who are interested in MLM to avoid taking the risk of joining a new company, because the failure rate of new MLM companies is abnormally high. What is the use of being the first to join a new company, if there is a 90% probability that company will not be around next year?