If you are considering investing in a direct selling business but have not yet made the initial payment, these explanations might help you avoid falling victim to a scheme which can be disguised as a legitimate business.

• What is a pyramid scheme?
• What is the difference with legitimate income opportunities?
• How to protect yourself from pyramid schemes

Direct Selling Europe (DSE) member companies practise sustainable and legitimate direct selling and they abide by the highest ethical standards and put consumer rights at the top of their agenda. Discover these reputable companies and their products.

What is a pyramid scheme?

A simple pyramid scheme works like this: participants attempt to make money solely by recruiting new participants into the programme. You can recognise a pyramid scheme at the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

A more elaborate pyramid scheme involves purchasing products for a high amount of money in order to become a “distributor”. The person who recruited you usually receives a 50% commission and the rest goes to the company.

Most disguised pyramids, however, are not this easy to unmask. Pyramid schemes often choose products which are cheap to produce but which have no established market value, such as new miracle products, exotic cures, etc. This makes it difficult to tell whether there is a real consumer market for the products.

What is the difference with legitimate income opportunities?

Some pyramid promoters try to make their schemes look like multilevel marketing methods. Multilevel marketing is a lawful and legitimate business method which uses a network of independent distributors to sell consumer products. Businesses based on pyramid schemes however seldom involve sales of real products or services to which a monetary value might be easily attached. Instead, money is made in typical pyramid fashion, from recruiting.

Multilevel marketing, on the other hand, is a popular way of retailing in which consumer products are sold by sales agents directly to consumers, usually at their homes.

The advantages of direct selling through the multilevel marketing method are numerous:

- you can set your own hours and earn money by selling consumer products supplied by an established company.
- you can also build and manage your own sales force by recruiting, motivating, supplying and training others to sell those products. Your compensation then includes a percentage of the sales of your entire sales group as well as earnings on your own sales to retail customers.

This opportunity to indirectly increase your income has made multilevel marketing an attractive way of starting a business with comparatively little money.

How to protect yourself from pyramid schemes?

The best way to avoid a disguised pyramid fraud is to know what to look for in a legitimate income opportunity. The following are some important questions to ask to help tell the difference between a legitimate company and an illegitimate scheme.

What is the start up cost to join?

There should not be unreasonable start up costs to join a company. Most direct selling and multilevel companies keep their start up fees small and it usually includes the distribution of a start up sales kit.

Is there an inventory policy?

Does the company buy back unused inventory? If the company does not have a policy, you could be stuck with unsold inventory that you are not able to sell. Also, inventory purchases should never be more than you can realistically expect to sell.

Is the company selling products to consumers?

If the answer to this question is no, stay away. Multilevel marketing depends on selling to consumers and establishing a market. This requires quality products that are competitively priced.

How many years has the company been in business?

Look for a legitimate company that has a track record, not something that was just created overnight. Other viable questions to ask would be about consumer feedback and consumer sales. The product should be viable and there should be a competitive market for the products. Direct selling companies depend on selling to consumers and establishing a market.

One should also be aware of false marketing and false information on the internet. Many blogging sites are used by non legitimate companies to make themselves look legal in addition to using them to discredit other legitimate direct selling companies. Any and all opinions on blogs are just that, opinions, and should not be taken or viewed as factual information.

Before you sign up with a company, investigate carefully. You should consult with others who have had experience with the company first hand and know and use the products. You should get answers to all your questions from the company itself. If this is not the case, beware. Also, check out the company literature and its website. But do not assume that official looking documents are either accurate or complete.

To learn more about how you can choose the right company for your direct selling career, click here and check out a variety of equally sustainable and ethical companies that can provide you with earnest income opportunities!

For more information on how to distinguish legitimate companies from pyramid schemes, click here.

As a consumer, you can also learn to recognise fair consumer practices from those that are unfair. Click here to learn more about being a smart consumer.