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Pyramid Power: How Multi-Level Marketing Schemes Work & How To Identify Them **Pyramid Power: How Multi-Level Marketing Schemes Work & How To Identify Them** = **Introduction** They called it pyramid selling before they called it network marketing. Today, it is often called [multi-level marketing](http://en.wikipedia.org/wiki/Multi-level_marketing), or MLM. As soon as this term becomes stigmatized, they’ll call it something else, but no matter what name it goes by it will still be [lipstick on a pig](http://en.wikipedia.org/wiki/Lipstick_on_a_pig). As an almost universal rule, companies that use “multi-level marketing” without selling their own unique products ([and even some of the ones that do](http://en.wikipedia.org/wiki/Metabolife)) are in fact elaborate [pyramid schemes](http://en.wikipedia.org/wiki/Pyramid_scheme). Pyramid schemes come in many varieties, but what they all share in common is their inevitable collapse. The most infamous and overt examples of these deceits are Ponzi schemes, such as [Bernie Madoff’s that collapsed in 2008](http://en.wikipedia.org/wiki/Madoff_investment_scandal), probably the largest financial fraud in history. **Pyramid Schemes Defined** Businesses sell goods or services to customers. Apple sells computers to consumers, IBM sells servers to businesses. Despite some window dressing, the primary “product” sold in a pyramid scheme is the *right to participate* in a “business opportunity,” and the pyramid's customers are merely people who pay to do so. More directly, businesses derive their profits from the sale of goods and services to customers, whereas pyramid schemes derive their profits primarily from the sale of the *promise of profitability* to people who join the scheme. **Pyramid Schemes' Operational Characteristics** In all pyramid schemes, participants must [pay to play](http://en.wikipedia.org/wiki/Pay_to_play). They pay up front to join and often to continue to participate later on. Payments ca

Pyramid Power: How Pyramid Schemes Work & How To Identify Them **Pyramid Power: How Multi-Level Marketing Schemes Work & How To Identify Them** = **Introduction** They called it pyramid selling before they called it network marketing. Today, it is often called [multi-level marketing](http://en.wikipedia.org/wiki/Multi-level_marketing), or MLM. As soon as this term becomes stigmatized, they’ll call it something else, but no matter what name it goes by it will still be [lipstick on a pig](http://en.wikipedia.org/wiki/Lipstick_on_a_pig). As an almost universal rule, companies that use “multi-level marketing” without selling unique products are in fact elaborate [pyramid schemes](http://en.wikipedia.org/wiki/Pyramid_scheme). Pyramid schemes come in many varieties, but what they all share in common is their inevitable collapse. The most infamous and overt examples of these deceits are Ponzi schemes, such as [Bernie Madoff’s that collapsed in 2008](http://en.wikipedia.org/wiki/Madoff_investment_scandal), probably the largest financial fraud in history. **Pyramid Schemes Defined** Businesses sell goods or services to customers. Apple sells computers to consumers, IBM sells servers to businesses. Despite some window dressing, the primary “product” sold in a pyramid scheme is the right to participate in a “business opportunity,” and the pyramid's customers are merely people who pay to do so. More directly, businesses derive their profits from the sale of goods and services to customers, whereas pyramid schemes derive their profits primarily from the sale of the *promise of profitability* to people who join the scheme. **Pyramid Schemes' Operational Characteristics** In all pyramid schemes, participants must [pay to play](http://en.wikipedia.org/wiki/Pay_to_play). They pay up front to join and often to continue to participate later on. Payments can be direct (e.g. recurring membership fees) or indirect (e.g. tickets to for-profit events hosted by the