Pyramid Schemes
Every now and then I tell people how my husband and I support* our family with our Direct Sales business. Inevitably the conversation leads to this question, “Oh, so it’s like a pyramid scheme?”.
No, Scentsy is not a pyramid scheme. After a while, I began to wonder what exactly is a pyramid scheme. Why do so many people consider any direct selling business to be one?
What Is a Pyramid Scheme
So first, what is a pyramid scheme? When in doubt, turn to Wikipedia! 🙂 –
“Pyramid schemes—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. Participants earn the real profit, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses.”
Often, the term pyramid scheme is associated with direct selling businesses. However, it actually happens just as much if not more often in the financial sector.
Examples
I did a Google search for the term pyramid scheme. The first result was an article about a Montana woman. She pleaded guilty to using money from new investors to make payments to earlier investors, between 2008 and 2016. The article states that "she's accused of taking $1.5 million from 28 different people. At least four of the investors were identified as vulnerable persons because of their age, and one was mentally disabled."
That type of "business" is bad, and should get a bad wrap. It's also illegal (with good reason).
Here is an another article in Investopedia about pyramid schemes in the financial sector. There's also a great short video on that page explaining pyramid schemes.
How to Know if a Business Is Legitimate
Below is a video from the Direct Selling Association in Australia called "Understanding Illegal Pyramid Schemes". The video outlines they key points of how to identify whether a business is a legitimate direct selling business or a pyramid scheme.
vimeo id="145132190"
MLM organizations
Specifically with regards to Multi-level marketing organizations the same Wikipedia page states –
According to the U.S. Federal Trade Commission legitimate MLM, unlike pyramid schemes:
"...have a real product to sell. More importantly, MLM's actually sell their product to members of the general public, without requiring these consumers to pay anything extra or to join the MLM system. MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits."
Selling of Goods is Key
In summary, any business model in which members make money from the signup fee of someone else rather than any actual selling of goods or services is a pyramid scheme. Additionally, in exchange, the organization promises its new members a share of the money taken from every additional member that they recruit. If a percentage of your sign up fee goes directly to those who enrolled you, or if you are a member of a business that rewards you financially when someone joins under you – then you are part of a pyramid scheme.
The FTC also has more information at this link- FTC Pyramid Schemes - to help consumers understand the difference between legitimate direct selling businesses and scams.
So do I sell products? Absolutely! Scentsy has a fantastic brand with amazing, innovative products namely, Warmers, Diffusers, Buddies, Laundry, Skin, and, of course, it's very, very popular fragrances!
To buy Scentsy online simply visit my Scentsy Website to browse all of the fantastic items I sell.
Pyramid Scheme Promises
Pyramid Schemes come in all shapes and sizes but all make massive promises. Generally speaking, these schemes also leave their members, except the few at the top, worse off. This same Wiki page tells of about a dozen notable pyramid schemes all over the world. These businesses have caused riots and robbed thousands, if not millions, of people lots of money.
Pyramid schemes are illegal ploys to rob people. They promise an income to convince more and more people to pay the enrollment fee, of which they get a portion.
Structured to Defraud
In a Forbes magazine article by Nancy Collamer, she clarifies that “MLM’s are sometimes erroneously referred to as “pyramid schemes” – companies structured with the intent of defrauding the public”. These organizations are designed to make money, but NOT generated by the sale of any product or service. Money is made when individuals pay an enrollment fee - to a small group or individual at the top and are illegal.
Is Scentsy a Pyramid?
In Scentsy, I do get potential leadership bonuses from the amount my team sells. However, I don't get a sign-up fee when they join. I am paid for helping new team members join and start a successful business, selling actual products.
Many ask the question of how is a Scentsy consultant paid; can I really make money with Scentsy? You can watch this video I created to explain the Scentsy Compensation Plan and how we make money.
Start a Legit Business
And as always if today is the day you’re and ready to be your own boss and looking for a legitimate business opportunity, come join my Scentsy team! Ever wonder if you’d make an awesome Scentsy Consultant? Check out my blog post answering that very question – Could I be an awesome Scentsy Consultant?
Are you ready to work hard to earn trips, make great friends, make money, and be able to enjoy more time with your friends and family? Then come on over to my Scentsy website and Join Scentsy!
Is Scensty A Scam?
Want to learn more about Scentsy, the company? Here's a little history about Scentsy in an article answering the question Is Scentsy a Scam?
*When I talk about income from our Scentsy business, the FTC requires that I add results are not typical, and include this Income Disclosure Statement. Results are not typical, but honestly, neither are you. I worked hard to make this happen, and so can you.
