Sales is the necessary ingredient that makes pyramid schemes work. Without sales, the company gets neither new recruits or any revenue
Pyramid schemes are an illegal form of business where employees are payed to recruit additional employees. These new recruits are usually for the sales role, and are immediately incentivized to recruit people on their own. Not only do they sell the products to the customers, but they also sell the job to other people in their life.
Pyramid schemes different from legitimate multi-level marketing (MLM) businesses because of the strong incentives for recruitment. MLMs, while they also don’t hold salaried employees, don’t pay their employees for simply hiring new employees. Instead, they hire a large amount of people through a referral program and pay them commission. Many well known MLMs are accused of being pyramid schemes, and some have even been ruled such in other countries. Examples include Vector Marketing and Herbalife. These groups often target college students and other lower-income brackets, as it is easy to be hired and promises good money.
Both pyramid schemes and MLMs rely on familiarity to sell their products. Because they don’t focus on building a good reputation, they need their employees to leverage the trust they’ve earned on their own. Because the company may not be trusted, they prefer salesmen sell to the people they know personally. Often they will collect contacts from their employees, preferring to cold-call people they have personal connections to than follow leads to talk to a stranger. Either way, they skip past the part where the salesmen and the customer have to connect, utilizing unrelated relationships to push their product.
BoweryJE22
Pyramid schemes! I’ve dug into this before because many people accused the place where my brother works as a pyramid/ponzi scheme. According to what I have read, it’s illegal because there’s nothing to back up the structure of the company. If they are paid solely on bringing in new employees, then you’d be right in saying it’s illegal. But if they are paid based on commission and residual income, as well as actually selling something, then it makes for a great business model. If they aren’t selling anything, then the whole thing can collapse and it hurts the economy. It’s like currency (in its early days) not being backed by metals. Another popular MLM is Beach Body. I actually know a family that was able to be extremely successful using them. Good article and interesting stuff. I find that companies who give employees more freedom and more money incentives do better. Though, this isn’t always the case.
MLM’s are a very interesting subject. Although MLM’s technically sell something unlike pyramid schemes, usually those sales are exaggerated and the products are pretty lousy. Sure, there are some exceptions to this, but mostly it seems like a legal workaround to still operate as a pyramid scheme. It would be nice to hear more about this at GCC.