Pyramid Scheme Test:: Red Flag #1: Endless Chain of Recruitment

Sustainability Test: Could everyone on this planet benefit equally?


Pyramid Scheme Test

Red Flag #1: Endless Chain of Recruitment

Does this apply?

• YES continue to next step
  
• NO continue to next step
  

Participants are recruited into an endless chain of recruitment.

Questions to Ask Yourself:

• Would you, as a new recruit, be permitted and even encouraged to recruit other participants, who would in turn be encouraged to recruit others, and they still more, etc. - from whom you could collect commissions and/or bonuses on what they buy or sell?
• Visualize yourself recruiting a chain of recruiters recruiting recruiters - including friends and loved ones - just to enrich yourself. Wouldn't you rather preserve those relationships?

Important Background for Red Flag #1

With the chaining feature in an MLM compensation and marketing plan, each person recruited is empowered and given incentives to recruit other participants, who are empowered and motivated to recruit still other participants, etc. - in an endless chain of recruiters recruiting recruiters - without regard to (de facto) market saturation.

All network or multi-level marketing (MLM) programs, no-product pyramid schemes, and chain letters have this recruitment chaining characteristic in common. You would be wise to avoid any program in which you are recruited into a chain of participants (distributors, agents, representatives, etc.), which are organized into multiple levels, especially where the position in the chain or hierarchy of participants is determined by timing of entrance into the program and/or by success at recruiting a downline of participants. While a few earn substantial profits, the vast majority of participants in such programs lose both time and money.

In at least four studies, chain selling schemes that feature unlimited recruitment in an endless chain of participants have been found to be uneconomic; i.e., not profitable except for a tiny percent (less than 1%) of participants at or near the top of their respective pyramids. Yet MLM promoters typically present their programs as outstanding business or income opportunities This fallacy is at the heart of a maze of misrepresentations used in MLM recruitment. Whether or not law enforcement interprets the chain selling program as an illegal pyramid scheme, it can be considered an unfair trade practice - or unjust enrichment of a few at the top of a pyramid of participants at the expense a downline of misled participants, the vast majority of whom are mathematically pre-determined to lose money.

It should also be noted that quality of products or services often becomes questionable when incentives are tied to recruitment. This would apply to such products and services as health products, investments, or internet services. But even if the products are of exceptional quality, it is the inherently fraudulent design of the chain-selling program that misleads people into participating against their own best interests. The vast majority of recruits are destined to lose both time and money.

For most chain selling programs (MLM or multi-level or network marketing, etc.), income is dependent primarily on downline recruitment of participants who will buy (or subscribe to) products to "play the game." As a general guideline in evaluating MLM programs, if you must recruit to be successful, or if the primary emphasis in the compensation plan is on building a downline, it is not a viable income opportunity except for those at or near the top of the pyramid. And you must decide if your success at the expense of so many victims will leave you with a clear conscience.

In summary, MLM is dependent on an endless chain of recruitment of participants as primary customers. It assumes infinite expansion in a finite market. As a business model, MLM is therefore inherently flawed, fraudulent, and unprofitable except for a few at or near the top of a pyramid of participants. It is also extremely viral and predatory, preying on the most vulnerable among us.

For more on the following related topics, visit our Saturation page.

• Is saturation inevitable?
• Do MLM companies sell products at retail?
• Recruiting MLM's become Ponzi schemes.
• Does unlimited recruiting doom participants to failure?
• The ill-fated Amway decision.

Disclaimer:

These evaluations are intended purely as a communication of information in accordance with the right of free speech. They do not constitute financial, legal, or tax advice – merely his opinions based on his own research and that of others. Anyone seeking such advice should consult a competent professional who has some expertise on endless chain or pyramid selling schemes. Readers are specifically advised to obey all applicable laws, whether or not enforced in their area. Neither the Consumer Awareness Institute nor the authors assume any responsibility for the consequences of anyone acting according to the information in these reports.