The dreaded pyramid scheme. You know what it looks like: there's one guy up top and a bunch of little guys on bottom. The little guys get little dollars (or no dollars!), while the big guys get all the big dollars. It's pretty obvious, right? But stop for a second and think of how a traditional brick and mortar store is operated. You have a lot of sales people and cashiers. Over them, there's a bunch of department managers. Then you have a few shift managers, then a couple of assistant managers, and finally a store manager or owner. Drawn out, it looks a lot like...a pyramid. If just drawing the shape of the organizational structure isn't a good way to tell if your amazing new "work-at-home" opportunity is legit, then what is? First you need to know...
What is a pyramid scheme
According to the Former General Counsel of the FTC, Debra A. Valentine, a pyramid scheme "promise[s] consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public." There are 2 clues that you aren't selling a product, but that you are the product instead:
- inventory loading - when the company requires representatives (or sale members or distributors) to buy a lot of product - more than they actually could ever sell on a non-professional or part time basis. You have to buy more every month, or every quarter, or every sales period or you have to invest a significant amount of money in the beginning to "stock up your inventory." A good example of this is LIMU, which requires that you purchase a $500 or $1000 starter kit to initially sign up, then purchase at least 100 units of PV (Personal Volume) each month, a minimum of $120. Additionally, you must consume or sell 70% of that product before ordering more, so that you never have the opportunity to "make up" for reduced sales one month by selling the excess the next month.
- lack of retail sales - what are you selling? Does a meaningful portion ever actually get sold to someone that isn't in the club? Is the product or service actually valuable or tangible? Is there real, undeniable proof (not hearsay and not testimonials) that the product is selling to people not within the company? Are you rewarded for selling the product more than for recruiting new sellers? Again, Limu is a prime example. There, you aren't commissioned or rewarded for selling product. You earn rewards and commissions on what enrollers under you earn.
If you are at the top, that's great for your wallet, but bad for the conscience. If you are at the bottom, it's bad for both. The later you join in, the lower your chances of success and the higher your risk. Rest assured, if you've heard about it on Facebook, you are at the bottom. Because of this, pyramid schemes are unsustainable. Each new level grows exponentially, until either the market is saturated or the population runs out. This simple graphic below shows how a company that starts with 6 people agreeing that each member must recruit only 6 more exceeds the number of people in the entire world in just 13 levels. LIMU advertises bonuses based on an 8 level chart, just 2 levels below the population of the entire U.S.! For LIMU to work for you, you'll need to be among the first 36 people promoting the company!
No mistake about it, LIMU is a pyramid scheme, but since pyramid schemes are illegal, they prefer to be called "multi-level marketers" or MLMs. How do we know that this is, in fact, not true of LIMU? Because MLMs have an actual product to sell to the public and significantly reward those sales, instead of rewarding recruitment of new sellers. Similar to retail sales, this is the third value that you need to look for when deciding whether it is a scam or a legitimate direct-sales opportunity. Think of Avon, which has a well-established base of products that can be ordered through a representative or directly from the website, no rep needed. While they do reward for bringing in new representatives, that is not the primary focus of the business and do not feature "joining the team" as the opening salvo on the Avon website. When visiting the LIMU website, very little is actually mentioned of the product. There is a page displaying the 3 or 4 items they push, but there is no way to order them without a rep, and the final call to action on the page is to become a seller yourself in order to make money, not to enjoy the product.
Lastly, you need to look for information about the product and the company. A company that believes in what they sell will want you to know exactly how it works. They are proud of it. They may not give you the exact formula that would allow you to make the product yourself (plastic wrap and Bengay? seaweed from a remote region?), but they will have the ingredients listed or easily available for you to find. They also believe in their organization, in how it is structured and in how operates. Beware of any company that uses the word "proprietary" often and excessively. Also look out for keywords "downdraft", "downline" and "inverted funnel system" and for anyone that pushes a product by using extreme motivational tactics. If it makes you think, "Is this a job opportunity or a self-help seminar?", you probably need to take a step back to reevaluate what is actually going on. Always search for, read, and fully understand your investment responsibilities, the company compensation plans, and the products you are selling.
Scam or a legit work-from-home opportunity?
ItWorks! seems to be legit on the surface. The representatives I've spoken with are charismatic, charming, driven, and well-versed in the rhetoric that motivates and inspires others to act NOW or feel forever lazy and unsuccessful- natural salespeople that will offer you deals and discounts galore to get you locked in to the organization. The organization itself is modeled closely after LIMU. You are required to purchase and repurchase inventory, while never being rewarded for actually selling it. Bonuses are gifted for signing up yet another distributer. The values at work at ItWorks! are clear should you attempt to purchase the product without being a distributor yourself. Check out the ItWorks! website - is the first advertisement you see for a product or for the opportunity to sell a product? Once you figure out how to actually shop for the product online, you will pay nearly double the price - an incentive to get you to join the organization. Legal documents are available for most information, but they are full of the hyperbole and subtle propaganda, as well as leaving out the information you want to know most - how much is this going to cost you? In the end, ItWorks will cost you. A lot. And it will keep on costing. And it will not pay off - unless you are a charming salesperson with a wide reach and a gullible audience.
Verdict: It Works!...for those at the top of the pyramid. Most likely, that's not you. Don't get tangled in with this company.
doTerra and Thirty-one fare a little better under close scrutiny. doTerra has, by far, the best disclosure of policy and earnings potential of any direct-sales company compared here. doTerra is a company that believes in itself and in its product, as you can tell when you peruse the 42-page policy manual. Thirty-One is not as exhaustive, nor as transparent, but the range of products and ease of purchasing through the website further encourage the customer in the legitimacy of the company.
Verdict: doSELL doTERRA if it is a product you believe in. Thirty-One has more bags than that and the opportunity to make at least that much money. Proceed with caution.
Younique has the potential to prove itself to be something other than a scam, but almost misses the mark. It's aggressive requirement of a sales quota and lack of publicly available information makes this a company that smart sellers would be wise to steer clear from.
Verdict: Younique is truly unique in that they straddle the line between legitimacy and scam. If this is a company that you decide to invest in, READ ALL OF THE PAPERWORK! The fine print is fine so that you skip it over, but it isn't invisible.
Don't get caught up in the excitement and pressure generated by a gifted salesperson. When you are presented with an opportunity to make some spare cash selling on the side, investigate. Never make a spur of the moment decision.
Don't believe the rhetoric. No matter how invested you become in the company you sell for, not matter how much time you spend in it, or how much money you eventually make - you do not own your own business. You don't pay for a business license, you don't pay franchise fees, you don't pay business taxes. You work for that company as a salesperson; you do not own any part of it. Those in charge want you to feel like you are part of the team- this means you will see anything with them as a capital investment and you will feel emotionally connected, but they get the profit and if you aren't good as a salesperson, they don't pay you a dime for your time.
Don't reduce your own market. If you are considering a direct sales company to work for, be smart, do your research, and choose one that rewards your sales, not recruitment efforts. The more salespeople there are, the more divided your market becomes and the fewer sales you can make and profit from. Why would you want to saturate your market this way? More people selling = fewer people buying from you = more effort and time you have to put in to make the same amount of money.