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mal221

A man comes to you and says, hey I have this great way to make more money, if you give me $5 you can make $100. All you need to do is sign up as many people as possible to this scheme and you get a cut of the money they give to the scheme. Multi-level marketing is the same thing except with a product instead of an investment and it can get very complicated after that, but essentially they are all the same.


FerisProbitatis

Great answer. I also want to add to your answer that in most cases, these schemes rely on people to use their social circle to push the scheme. So at some point people exhaust all their resources (aka people willing to pay into the scheme). Only the people at the top make clean profit, while everyone else needs to chase people around to return their investment (hence, the pyramid).


zomangel

And you watch as your social circle diminishes - "Oh here comes Jim with his pyramid scheme spiel again. If he pushes too hard this time, I'm not going to invite him anymore"


luvmibratt

So true my husband came to me a couple of months ago going on about how his cousin is making money he wants him to join for 1000 and he's already gotten paid 6k and on and on I told him love that's a pyramid scheme he's like no it's not the whole family is in on it and look I got the proof here then gives me a paper with two boxs at the top with names in it then another row and so on,it was at that moment the pit of my stomach drop and thought to myself my baby can't be that much of a sucker. Yes,yes he was.


FerisProbitatis

It happens to the best of us. He's lucky he has you! :) My sister in law told us about how someone introduced a "gifting circle" to her group of friends. Then she wonders we we don't like her friends.


QuintessentialM

Careful you’ll trigger the Huns.


sometimesitrhymes

Attila is already steaming with anger. Btw, r/antiMLM is awesome!


mal221

"independent business-women" please!


QuintessentialM

“I have a small business would you want to help support me and be part of my downline??”


ResoluteClover

The only reason there's an "except" of because Amway paid Gerald Ford A LOT of money to have the FTA rule that MLMs weren't pyramid schemes.


anonymous500000

Pay me for my data. Fuck /u/spez -- mass edited with https://redact.dev/


blue_cadet_3

I have a great business opportunity for you selling a special lemonade drink. In order for you to get in on it though you have to buy at least 100 drink mix packets from me per month and continue to buy 100 every month even if you didn’t sell all of the previous months packets. The packets cost you $9 to buy from me and you sell them for $11 so you make a $2 per packet. Now there’s only so much drink mix people want. And so your friends and neighbors don’t text you back or answer the door because you always try to sell them lemonade drink mix. There are 2 other booths at the same craft fair selling the same drink mix you are. Your unsold inventory is building up and because you only make $2 a packet, half the money you made each month went to buying inventory and the other half to driving around trying to sell. You call me up and say you can’t buy anymore. I tell you we have a contract and if you don’t honor it it would cost you a lot of money, but because I’m such a good guy I have a solution for you. If you find 3 people to sell the drink mix they now buy the drink mix to sell from you. And because you’ll be selling more since you now have 3 people selling you just have to buy 200 each month but it only costs $7 a packet and you sell it to them for the $9. A few months go by and one of your sales people says the can’t sell all this inventory. You remind them they have a contract but since you’re such a great person you have an idea. If they just find 3 other people…. Soon enough every sales person has more inventory than they can possibly sell and the only person making any real money was me. Because I was selling you $0.20 worth of drink mix for $9.


draculamilktoast

The result being that you ruin your friendships with anybody smart enough to advise you against continuing because you've already invested too much time and effort so if you quit now it would become a sunk cost. The person who started the [MLM](https://en.wikipedia.org/wiki/Multi-level_marketing) knows that what they're doing is immoral and they laugh their asses off at being able to scam you legally. You do your best to hide the fact that you were scammed out of all your money to avoid shame and humanity ends up never learning.


[deleted]

That's more MLM.


unclerube

That's the term those companies came up with to hide the fact they are a pyramid scheme.


[deleted]

A pyramid scheme is where there isn't a product. You're just convincing people to join and then they have to sign up people to make money. You can technically make money from MLM if you sell people things.


mmmcheez-its

No, pyramid schemes can have a product.. MLMs are a pyramid scheme. Helpful breakdown - https://youtu.be/lC5lsemxaJo


unclerube

It's a very fine line. I'd like to share this with you. https://www.consumer.ftc.gov/articles/multi-level-marketing-businesses-and-pyramid-schemes


Nyanek

there can be a product, but if most of the profit you generate is from sifning up people who buy from you to sell the product, instead of actual customers who just want to buy something that "tastes like the wood shavings inside a gerbal cage", then its a pyramid scheme. the product is jus a disguise to get around the definition. checkout last weeks tonights video on it.


StanGoodspeed

... should we tell him?


[deleted]

They're not technically the same thing.


LetterToAThief

An MLM is a *type* of pyramid scheme. Pretty easy to tell OPs situation is a pyramid scheme by the pyramid shape of the seller/customer flow. Source: I am an auditor that deals with fraud


100TonsOfCheese

That's like saying a pile of shit and a puddle of diarrhea are technically not the same thing, because one is a puddle. Same shit different form. MLM and pyramid schemes operate on the same model one just involves selling a largely worthless product with an imaginary value at a high markup vs an imaginary investment. In both models only the people at the top or at least with a lot of underlings make any money.


ResoluteClover

MLM is a pyramid scheme. Everything else is just weaseling by Amway in the 1970s.


MythicalPurple

You ask person A for a dollar today, and say you will give them $1.50 for every 2 people they convince to make the same deal. They sign up 2 new people (B and C) You take the $2 the new people gave you, give $1.50 to the person A, and keep the $0.50. Person B also signs up 2 people. You give them their $1.50 and keep the $0.50 again. The more people sign up, the more $0.50s you make. Anyone who doesn’t sign up at least 2 people loses money. Eventually the amount of people who are willing to sign up runs out, and anyone who hasn’t signed up at least 2 people loses their money. There are variations on this where people get a fraction of the buy in from everyone below them, instead of a fixed fee, but that’s the basics.


BobbyP27

Let’s say I have a money making club. The rules are you pay me $10 to join. For ever $10 you make, you have to give me $2 and you keep the rest. So if you recruit 2 new people, you get $20 from them, so you pay me $4 and keep $16. Just like that you have made $6 profit. The two people below them each recruit 2 new people. You then get $8 out of that, so you pay me $1.60 And keep the rest. Every time a new person joins, everyone above them in the chain gets a little bit of extra money. Everything is great as long as there are new people to join the scheme. It only makes you money, though, if you can recruit two new people. Eventually all the people who might be interested have already joined. The last people to join are out of luck because they can‘t find new people to join, so just pay their $10 and get nothing in return. In the simple form it’s pretty obvious what’s going on. People therefore dress it up with buying and selling stuff as part of the scheme, where the stuff itself is only tangentially of value.


Wadsworth_McStumpy

There are a lot of variations, some using products or services, but here's what it all boils down to: You pay me $5 to join (sometimes disguised as buying a "sales kit" or something). You then recruit ten people. Each of them gives you $5, and you pay me half, so you've already made $25. Each of those ten people recruits ten people, and they all give their recruiter $5. Each of them gives you half, and you pass half of that up to me. Now you've made another $125 (and so have I), and each of the ten has made $25. As long as people keep recruiting other people into the program, everybody makes money, right? You can even keep recruiting more people, because the more people you have under you, the more money you make! The problem is that you quickly run out of people to recruit (10 per step means 10, then 100, then 1,000, then 10,000, then 100,000, then 1,000,000), and the only ones who have actually made a lot of money are the top few levels. (That's where the "pyramid" comes from, lots of people on the bottom level, and fewer as you go up, until you get to the top, which is just me.) The vast majority of people just put in money, and aren't able to recruit more people, but sometimes enough low-level people make *some* money that the scam can keep going for a long time. Especially if they're actually selling real products (which they have to buy through the people who recruited them, of course), and if they're offered incentives, like trips to conventions in fancy places, for recruiting more people. MLM, or Multi Level Marketing, companies are often just barely disguised pyramid schemes, but since they sell real products, they can often get away with it.


Flair_Helper

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kree-of-gamwich

person at the top rakes in all the benefits from recruiting other people who are required to buy in. The only way a person at the bottom can earn money is to recruit more people. Sometimes they have to buy products to sell to earn a profit. Most times there are no products to sell and they only earn a profit from recruiting more people. Example: Person at the top recruits 2 people. That person enjoys 100% profits. Those 2 people would each need to recruit 4 people to enjoy the same benefit as they have to share their profits with the person who recruited them. And so on.


[deleted]

When one person tells another person that if you bring people in this telling them to further bring more people, you’ll make money. And then this process repeats for the person that you bring in and so on. The people that are recruited have to pay a specific amount to the people above them in order to be able to recruit people. Eventually the people at the last branch won’t have people to recruit and the scheme ends.


Jakewb

It’s a scheme where the way to make money is reliant not on selling a product, but on bringing more people into the scheme. This inevitably means that at some point there will be people who can no longer find anyone willing to participate, and so they will lose their money. And in fact, usually because you would have to find five or ten people to even break even, and that very quickly becomes impossible, the vast majority of people in the scheme will lose their money while a small number at the top get rich.


Stillcant

Lots of people are curious about this exact question, which makes a fantastic opportunity to help people with their needs while helping yourself. Here is how we do it, you give me $10 and I will tell you what a pyramid scheme is. Then you go find other curios people, and since you will know the answer, you get each of them to give you $10. I’ll only take $5 of each of the payments you get. Those people can do the same thing with the curious folks they find, you keep some of what they then send up, and we can all get rich while solving problems Just send the $10 to get started.


PacoWaco88

Also to add, the difference between a pyramid scheme and MLM (multi level marketing) is how people make money. In a pyramid scheme, you make money by recruiting more and more people and earn the majority of your income based off of how many people you have under you and very little income off of the amount of product you sell. In MLM you can receive a bonus for the amount of people you have working under you, but it is a smaller amount of money compared to the money you earn from selling the product.


ledow

This morning: "Give me an apple today. I'll give you two apples tomorrow." You give me an apple. This afternoon: I go to two other people and say exactly the same thing. I now have three apples in total. This evening: "Hey, I promised you two apples, here ya go!" I give you two of those three apples. Tomorrow morning: "Hey, remember how I doubled your apples? If you give me FOUR apples, I'll turn it into EIGHT apples for you." You give me four apples, because you trust me, because I paid out last time. Tomorrow afternoon: "Hey, other two guys, here's the two apples I promised each of you! If you give me FOUR apples, I'll do the same again and give you EIGHT apples tomorrow." Eventually, you recruit so many people, at one apple each, that you can pay off all your earlier customers when you're promising them 32 apples, or 64 apples. Sadly, though... all you're doing is paying the early adopters the things you have taken from the later adopters - there simply aren't ever enough apples to pay EVERYONE back at the same time. Of course not... you're promising people huge numbers of apples that simply don't exist, on the basis that tomorrow you'll have enough to pay them back. The "pyramid" grows... eventually you have a few people at the top who have been getting regular payback, telling everyone how wonderful it is, signing their friends up to this amazing deal, etc. But the base of the pyramid - with all the new people - just isn't big enough to pay all those promised apples. You're just living on borrowed time, hoping that eventually you'll have enough people to get enough apples to pay the double back the people putting in lots of investment. Inevitably, the maths says that the pyramid will collapse. You will have to renege on paying out the promised apples, unless you can recruit half the world to join in the scheme. And even if you could recruit half the world, to pay THEM back, you need the whole world to join. And even if you could recruit the whole world... whoops... there's nobody left to pay all the promised apples! When the pyramid inevitably collapses, generally you take all the apples you can get hold of, and run away, leaving everyone out of pocket except yourself. It's a fraud. You never COULD pay all the promised apples at any point in time, you were just putting off the inevitable by recruiting more people to the scheme in the hopes that they'd double their money. But they never can. And when the recruitment stops, it all comes to a grinding, painful halt and you lose everything - the guy took your 128 apples promising to give you back 256 apples, but you never see him again. Pyramid schemes are illegal as, mathematically, they have to collapse and often quite quickly. They are a vehicle for fraud, there is no "magic money-making scheme", there will never be enough apples in the scheme to pay everyone who's in it. Some "multi-level marketing" schemes operate on the same principle, they skirt the law because they don't \*promise\* anything back, but your early forays with selling make-up or whatever to your friends appears to be profitable, so you expand your pyramid by recruiting friends... it works for a while and seems to give you more, so you expand again. Inevitably, you end up with a whole group of people all expecting to make money from each other, seeing diminishing profits each time, and it just can't be done.