How Multi Level
Marketing (MLM) schemes with Pyramid Structure works ?
How Multi Level Marketing schemes work?
Multilevel marketing schemes are generally
network based marketing schemes, in which a person has to add more people under
him. The people obviously pay some money to “join” the business and then they
add more people under them. In almost all the schemes, the person is
incentivized for adding more people under them.
You all must have heard about the AMWAY business model,
which is nothing, but a great example of Multi Level Marketing, while the
business is legitimate and there is no fraud in it, still it also falls under a
pyramid model. Even I have attended its meeting once . The business model
looked so easy, just pay Rs 5,000 to join the business and then keep adding
more people to “business” and you get some percentage from the entire sales
under your Tree. There are various ranks like Silver, Gold , Diamond etc., and
the higher your rank, the more you make. Lot of people make money in it through
legal way, and more you work harder , the money you can earn, but the point is
, people who get in early make more money and the people at bottom struggle a
lot.
Why most people lose money in Fraud Pyramid Schemes?
Guess what?! A lot of people make money
in these Multi Level Marketing business models, and they become the ambassadors
of the business. They flaunt the cheques and the money they make and believe
me, some of them are real!. They really do make money and we will quickly see
more on that, but the point is, that the majority of the people lose lot of
money and struggle in these kind of get rich quick pyramid schemes. And that happens,
because there is a limit to adding people. You can’t add more people in the
tree after a certain point and when the tree becomes bigger, than it’s trouble
point, it’s reaches a kind of saturation level when the biggest chunk of
people who are at bottom lose all the money. Here is an example graph
which will give you a good idea of what I am talking about.
Example of SpeakAsia
You must have heard about the recent craze
called Speak Asia Online! I
will really not be surprised if you tell me that you were part of it! I will
not be even surprised if you tell me you made lot of money too! That might
happen if you started earlier! Because then, the scam was still in the making!
If you joined at the end, you were at the bottom of the tree you lost your
money. This is how it worked!
A person can join SpeakAsia by paying Rs
11,000 and becomes a “panelist.” He then starts getting 2 surveys per week and
getting Rs 500 for filling up each of them. That’s around Rs 4,000 per month
and 48,000 per year and that was how Speakasia was promoted by its member to
lure other members. This was at the start and though the amount of money
coming IN was less than the amount of money which went OUT, and the whole
model was unsustainable in long run, it was definitely sustainable in short
term. Just think about it! Is it not easy to pay 10 smaller bakras if 100
bigger bakras join the next batch?
And after all that, it crashed! But still
there are innocent people out there who claim that it was genuine and it worked
for them. They are not wrong! It really worked for them and they made money,
but that was part of the game. They wanted you to make lots of money so that
you can bring more people in and then one fine day when they make a really big
pile money that they can just vanish! Poof!
Breaking Relationships !
The biggest other bad thing about these
pyramid schemes are how the relationships become sour and messed up when the
person who is part of MLM tries to add all their friends and relatives into the
MLM, suddenly they start looking at humans as “targets”
MONEY MADE SIMPLE MLM Scheme – Lets create a SCAM Plan right now
Let me know you how simple it is to create a
pyramid scheme and it will look so attractive . Say we have an book named “MONEY MADE SIMPLE ”.
Now here is a scheme
·
Pay Rs 1,000 and
become a member of the scheme
·
You get the book FREE
on signup
·
Make a person join the
pyramid scheme and get Rs 250 for each person
·
You can add any number
of people to this scheme
You realize that if you add 4 people
to the group, you will get a 1,000 bucks and a Free Book! So it’s extremely
easy for you if you join the scheme early.
Let’s say 10 people join under me.
Level 1 – Add 10
people
So 10 people will pay 1,000 each and I will
make Rs 10,000 total , and I will send back a FREE book to all the 10 people. I
incur Rs 5,000 expenses and make a cool profit of Rs 5,000.
Level 2 – Add 100
people
Now let’s see… Each of these 10 people
persuade 10 more people under them, and 100 more people join the scheme. They
will pay Rs 1,000 each to me;, that means Rs 1,00,000. I will spend Rs 50,000
for the 100 books , and I will be left with Rs 50,000. But out of this 50,000,
I need to give a share to each member at level 1, for 1 person the incentive is
Rs 250 , so for 10 people, the incentive is Rs 2,500 for each person at level
1, and because there are 10 people at level 1, I will have to pay Rs 2,500 to
each at level 1, and I will have to share 50% out of 50,000, that’s Rs
25,000. But I still keep Rs 25,000 with me.
So now you can see, I made a total 5,000 from
10 people at level 1 and Rs 25,000 from 100 people at level 2. And each of the
10 person at level 1 made cool 2,500 from 10 people they added under them, they
not only recovered their 1,000 back, but also got extra Rs 1,500 and a FREE
book! Wow! This business model is amazing!
Level 3 – Add 1000
people
So the business is expanding and the word is
spreading and my book ambassadors are in the market advertising this scheme and
showing the kind of money they are making and the free book they get! Dude!
They also have a valid cheque with them! No fraud! . So the word has
spread like wildfire now and everyone wants to join this business.
Now, lets say each person at level 2 adds
10 more people under them again, because the word is spreading about this
awesome business. There will be 1,000 people at level 3, paying 10 lacs to me
and I will incur 5,00,000 expenses. I will pay 2,500 to each person at level 3,
that means 2.5 lacs in total, but I will still keep 2.5 lacs with me.
Level 4 + 5 + 6
Can you see, how it’s growing? And how people
are making money? From 1 person to 10 people, and from 10 to 100 and them from
100 to 1,000? But what next? Level 4? Level 5? Level?
When this reaches level 6 , there will be 10
lakh people under this scheme and they will be paying 100 crores to me!
. You guys are going to hate me at that level! . Because you will
never see me again! . Neither will I send any more books to anyone!, Nor
will I send any share to anyone. I will just run away and you wont be able
to trace me! . Any person who would have joined in at the start would find it
easy to grow and spread the business. But people at bottom will just not be
able to do anything, they are the last batch of fools!
A Multi Level Marketing
is different from Direct selling. Any company selling directly to the customer,
removing all the supply chain management commissions behind, will be governed
by Indian direct selling association, http://www.idsa.co.in (within
India) and world federation for direct selling association, http://www.wfdsa.org .
There are many companies like Avon Cosmetics, Amway, Oriflame, Herbalife,
Tupperware etc.. registered under these federations. These companies work under
the ethics defined by the IDSA or WFDSA and are very harsh on the people who
dont adhere to these ethics. Many people reading this article will agree that
the quality of the products they produce are amongst the best in the world.
Many people are under the impression that these companies are similar to the
other ponzi schemes.
