What to say to, "Is this a pyramid scheme?"

On a call yesterday following the pyramid post, people wanted to know what to say if, they’re presenting the business or product, someone pops the question,

“Is this a pyramid?”

Before you brainstorm over your winning comeback, how about a quick check to see whether 1) your company acts like one or not, or 2) if you are acting like one (without realizing it, of course)?

Here’s the question we discussed:

1. Is your business all about recruiting?

If so, you are acting like a pyramid, according to Rushkoff’s book, Coercion:

“a pyramid scheme is…[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][where] the need to subscribe newcomers outweighs whatever benefits the products or system has to offer. Many MLMs sell distributorships more than cosmetics [name your product or service – KK].”

Yes of course you want to recruit reps – but if that’s all you do, you are in the pyramid zone, because you give the impression that the product and customers don’t matter, except to sell distributorships.

Everyone quickly re-evaluated what they were doing to be sure they weren’t coming across like that.

All could see how a fixation on doing 1. above might give someone else the impression that “Yep, there goes one of those pyramid schemers.”

After a quick review of 9 different company pay plans (of distributors on the phone) it became clear – it’s true what the recruiters say: “There’s no money in customers. All the money’s in the recruiting.”

Company owners decide where to put the money they pay their reps. Say a network marketing company pays out to the field, 50% of what it takes in. They have complete disgression on how to divide that up – between paying for recruiting and amassing customers (for those companies that make the recruiter/customer distinction – and some don’t.)

So, how much were companies paying for getting customers (who were not also distributors)?

On product orders ranging from $85-120, some people reported getting paid from 0 – 7%. In one company, they got nothing on those customer orders if they hadn’t reached a certain position in the company based on their sales; and for other companies, the reps reported getting 5 or 6% for orders of $100. (A few paid more. List to be posted soon.)

Five bucks for a hundred dollar customer order?

There are much easier ways to make money than that!

However, for recruiting, we got much higher returns. With sign-up bonuses and fast start bonuses of $50-350 or more, for orders ranging from $300-1000.

Who else wouldn’t rather make $50 than $5 for making one sale? Big money in selling distributorships (which may include products). Versus getting just customers.

So yes, companies whose pay plans are weighted so much to recruiting are acting like a pyramid. Worse, they make their reps look like it too, since they want to get the most return they can for their time, and would rather make $50 than $5. Who wouldn’t?

Well, as they say, if it quacks like a….

Oh. What to say to that question, “Is this a pyramid” (or ‘one of those things’)? One option (we discussed several):

Let me tell you what we do, and you can call it whatever you want ok?


We market products directly to consumers, people like you and me, and we also find people who want to do that with us. You think you could do that if I showed you what to do?

(That’s from the Truth book.)

And yes, there are other options…for another post…send in yours that have helped. (Use ‘Comments’ below).[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

About the author

Kim Klaver


  • Kim,

    Amen. I respect your talent to say it like it is. Doing MLM by only recruiting is like swinging for the fence every time. Some will get a home run, but most will strike out. Having an graveyard of MLMers who have “stuck out” is what hurts the image of MLM. I’ve seen people’s whole downline evaporate because it was built on nothing more than recruiting. Then they become bitter and disparage the entire industry.

    I’d rather cross the home plate by getting base hits. It may be slower, but it is more secure. The irony is that if you take the time to build a customer base and are making a steady monthly income, it is far easier to recruit.

    Lastly, I recommend your book “If my product’s so great . . .” to EVERY direct seller I speak with. Great stuff.

    Keep saying it like it is!

    — Walter from Appleton, WI.

    “I no longer need 80 ounces of Mountain Dew to get through the day”

  • When my wife was actively marketing, she too struggled with the ethical issue of a genuinely good product tied to a crappy strategy.

    Having worked through ‘all the smart words’ she realised there was no way to sanely mitigate the obvious – that the company line was to encourage pushing relatively high-inventory packages… something clearly common to many and perhaps most NM companies. [Which ones don’t? Please contact me off forum if you’d rather.]

    Common sense says that, if you’re aware of that policy in your company, you should be upfront about it: ‘Yes. Sadly it is (a pyramid-type-thing). I don’t like it and think it’s a stupid way to operate.’… cos if you don’t, things will likely eventually catch up with you and someone’ll get pissed that you misled them.

    If the product range is fairly priced, a sale is still available. (And if the product range isn’t fairly priced, then wtf are you doing anyway?)

    Sad-but-true… In my ‘bad old days’ before I reformed, I’ve helped companies set-up pure pyramid money-schemes (entirely legal, but hugely unethical). When asked ‘is this MLM/a pyramid thing’ the advised response was: ‘absolutely… it won’t last forever, so the quicker you get in the better your chances of making money’.

    … that’s my two answers.

  • Can I please come in on Mike’s >Let me know what you think… remark?

    Mike, I think it’s crap. Misleading and self-reverential nonsense:
    The new industry which is taking the world by storm… It is extremely important that you take a close look at this business – for the sake of both you and your family – as it is the most lucrative area you can be involved in and the worst thing that could happen to you is that you could become extremely healthy.

    And I clicked across to the parent site… again – I think it’s more misleading and self-reverential dross:
    Intellectual Distribution – an industry projected to create a millionaire explosion.

    Mike… ***ck you! [That’s qua…]

  • Commenting on my own comment…

    I’ve followed-up on this with personal email to Mike.

    Long-story-short… thus far the exchange hasn’t been what I’d hoped and doesn’t offer anything constructive to this whole issue of … ‘how do we best counter the problems this business has, and move it to a better footing in which the greedy don’t dupe the gullible – and things are ‘altogether more honest and decent?’.

  • One of the top distributors in my company said that you can also respond back with a question, “Do you like pyramids?” that way you can find out exactly what the person is thinking, because otherwise you don’t know if they have a negative or a positive opinion of mlm.

  • Yes, of course you can ask that, but sometimes the question is perceived as avoiding the original question. And many people see it as a set up.

    Because if they say, “No” you’d counter with well, it isn’t one. And if it’s “Yes” you’d say, what, “Yes it is”?

    It seems to me that if you can just tell the person what you do, like in the example I gave, they can decide if they have an interest or not.

    Definitions can lead to endless, and usually unfruitful discussions.

    The bottom line seems to me, is: do you act like a pyramid – which for most people means you are forever trying to get others, expecially your friend and family, to sell and recruit. And which most people don’t want to do.

  • Gulliver – You said most companies push high inventory packages. Are you refering to what is available, or what is required? You can sign up with Usana for $19.95. There are packages available, but you are NEVER supposed to stock pile. If you have a Doctor’s office or retail service and retail the product you may want more products on hand.

  • Michelle… I’m tagging the practice whereby distributors are encouraged to enrol at a higher level to ‘enjoy’ enhanced status and receive additional bonuses. And, I’m also criticising the practice of ‘you can also get this special promo pack [usually involving a few hundred dollars extra spend] – but it’s only available at time of sign up’.

    Examples of the first instance – from memory, not a specific attack – Mannatech. And the second – again from memory, not a specific attack – TNI.

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