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What is a 'Pyramid' scheme?

In a pyramid scheme (also called a chain referral scheme), an organisation compels individuals who wish to join to make a payment. In exchange, the organisation promises its new members a share of the money taken from every additional member that they recruit. Those at the top of the pyramid also receive a share of these payments. As the pyramid increases in size, the scheme becomes more lucrative for its members - especially those higher up the chain.

When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. As such, Pyramid schemes are illegal in many countries.

Often legitimate multi-level marketing companies are confused with pyramid schemes. However, Not all multi-level marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme.

Red Flags for Pyramid Schemes:

  • Payments made on basis of number of people recruited, not product or service sales

  • Inability to earn more than those before you in the scheme

  • Promises large earnings with minimal effort

  • Poor or non-existent training

  • Often aggressive tactics used to urge new members