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Pyramid schemes quickly become unsustainable. There are many different kinds of pyramid schemes, but the two most basic are product-based and so-called naked pyramid schemes.
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In a naked pyramid scheme, no product is sold. Here's how it works: Advertisement One person recruits 10 other people to participate in a "no-fail investment opportunity. The recruiter now tells them to go out and recruit 10 more people to do the same.
Sounds simple enough, but here's the problem: Let's say the initial 10 recruits each find 10 more people. That means they have to find 1, people willing to sign up for the program. And if they somehow find 1, people, that next level of the pyramid will need to sign up 10, to schemes for quick earnings a profit.
Eventually, there won't be enough recruits at the bottom of the pyramid to support the level above it. That's when the pyramid topples and everyone at the bottom loses their investment.
A product-based pyramid scheme is the same concept disguised as a legitimate direct sales opportunity. The distributor gets 10 percent of each starter kit that's sold. The distributor also gets 10 percent of each product that any of his recruits sells, including more starter kits.
The recruits are told that the fastest way to make money isn't by selling products, but by recruiting more people to buy starter kits. The people at the top of the pyramid get commissions from everyone in their downline, the many levels of recruits below them on the pyramid.
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The problem with most product-based pyramid schemes is that the products themselves don't sell very well, or have very slim profit margins. So the only way to make money is to find more recruits.
Eventually and surprisingly quicklythe market becomes saturated. There are too many people trying to sell the same unattractive product and there's no one left to be recruited.
It's mathematically impossible for everyone to make money in a pyramid scheme. For example, if each recruit needs to find 10 more people to recoup the cost of his or her initial investment, the eighth level of the pyramid would have to recruit a billion people to make back their money.
And the next level would need 10 billion, nearly twice the population of the Earth. In fact, pyramid schemes don't work unless somebody loses.
Those at the bottom of the pyramid are essentially defrauded by those on top. It's a mathematical fact that no matter how many people join a pyramid scheme, 88 percent of the members will be on the bottom level and will lose their money [source: Pyramid Scheme Alert ].
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Pyramid schemes are illegal because people don't lose their money due to normal market forcesbut because the system schemes for quick earnings them to lose so that a few at the top will win. Studies show that in a naked pyramid scheme, So what's the difference between product-based pyramid schemes and legitimate multi-level marketing MLM companies?
Or is there even such a thing as a legitimate MLM?
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