How to differentiate between Ponzi, Pyramid Schemes and Multi-Level Marketing

When you work hard for your money, you do not want to lose it. And if you invest your hard-earned money, you want to see great returns. But if you’re looking to invest money, be careful!

This is the reason why we are exposing ourselves to the knowledge of most things been carried everywhere nowadays

There are many ways to be tricked out of your money. There are frauds, schemes, scams and cons carried out by fraudsters, schemers, scammers and con artists.

Two types of rip-offs that are good to know are pyramid schemes and Ponzi schemes which we have started exposing.


A Ponzi scheme is an investment trick. Ponzi scheme is named after Charles Ponzi. In the 1920s, Charles Ponzi tricked thousands of people into investing in a postage stamp scheme.

At the time of his scheme, the annual interest rate for bank accounts was five percent. Ponzi promised investors a high return — 50 percent — in a very short amount of time. However, there were no investments. There were no honest returns. Ponzi used incoming funds from new investors to pay the returns to the earlier investors.

Pyramid schemes and Ponzi schemes share many similar characteristics in which unsuspecting individuals are fooled by unscrupulous investors who promise extraordinary returns.

However, in contrast to a regular investment, these types of schemes can offer consistent “profits” only as long as the number of investors continues to increase.

Ponzi and pyramid schemes are self-sustaining as long as cash outflows can be matched by monetary inflows.

Red Flags of a Pyramid Scheme:

  • The Promises to make thousands or even millions of dollars with little effort.
  • Long anecdotes of how many people have made a fortune with the company without providing concrete facts.
  • Large start-up costs and substantial hidden fees to become a distributor.
  • Revenue is generated from selling the opportunity not the product.

How do you tell one from the other?

  1. Are you selling a tangible product?

One of the biggest differences between Ponzi schemes and MLM sales is that MLM companies do provide real products for sale. Ponzi schemes don’t provide actual physical products, just “investments” that are supposed to be paid back (usually with the promise of much greater reward than risk).

If you’re handing your customers leggings or shake mixes when they hand you money, it’s probably a legal MLM company, not a scam.

  1. Are you required to invest a lot of your own money?

If you have to purchase your own inventory to start and lay out a considerable amount of cash for a product that supposedly “sells itself,” you may be the victim of a scheme — and there’s usually no way to get your money back. Be wary of any company that doesn’t offer to buy back unsold products, asks for payments in cash or requires a large initial investment.

In most cases MLM involves selling a product or service which is produced and supplied by a ‘mother’ company. You take on the responsibilities of selling the products and introducing other people to the company – Networking.

There is a wide variety of good quality Referral Marketing companies from all over the world to choose from. They offer products and services from a wide range of industries: health, telecommunications, household products, technology, e commerce, adult industry etc. It would be advisable to choose a product or service that you are interested in!

What are the Merits of MLM:

-Little or no startup costs with the potential to build a substantial business.

-Often uses a proven business formula.

-Low risk.

-A great deal of support and advice often given.

-Flexible -can be run on a full-time or part-time basis.

-Business can be run from your own home.

-Builds your confidence and increases your communication skills.

Checklist before Investing in a Job Opportunity:

Obtain and verify all company information, including name, address, phone number, website, and principals. Find out start-up costs and the expected return on investment. Review all marketing material and sales plans. Verify earnings of other independent distributors that have worked for or are currently employed by the company. Clarify contract cancellation and product buy-back policies.

You can as well Join my SBM Business School of Training Platform with the link

Related: Ponzi, Pyramid and MLM schemes (Part 1)

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  1. Thank you for the clarification

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