Pyramid Schemes, Sales Parties, and the Home Business

Print Friendly

Every Friday I answer a reader question.  If you would like to ask a question, please contact me.

A reader’s question:

The reason I’m writing is because I’ve recently been invited to and attended several "parties" for home businesses. I was wondering if you had written a post about this sort of thing. I have several family members who have joined as "consultants" and then get way over their head not realizing this is a type of pyramid scheme. I think there are people who can start one of these businesses and do well, but for the most part, I think people (I hate to say it, but mostly women) end up spending more money than they’re making. Although most of the products are nice, I feel most people end up guilting their friends and family into buying or selling the products. I think people don’t even realize you can buy a lot of the products (such as Tupperware, Longagberger Baskets, and even Mary Kay makeup) on ebay for a much cheaper price. I’ve just been fired up about this lately and thought if you hadn’t done a post you might think about it.


The Danger of Pyramid Schemes

Pyramid schemes are so dangerous for one reason.  They were successful in at least a few cases.  Each pyramid scheme needs a poster boy or poster girl so the company can say,  “Look at Sally. She is making $120,000 working from home.”  There is a Sally.  She is making $120,000, but she is at the top of the pyramid.  Your chance of even making about 1/3 that much is about 1 percent because of how the pyramid is structured.  The early comers always win, and the late comers always lose. 

The problem is that it is not sustainable.  Eventually, the market will dry up and no one else will sign up.  Then everything come tumbling down.

Danger signs: Too good to be true, a lot of money up front, a certain number of sales before you get paid.

Before participating in anything like this, do your homework and try to find some people who failed.  They are your most valuable resource.  Why did they fail and why won’t you? 

If you want to learn more about this topic check out Understanding the Difference between Multi-Level Marketing Programs and Pyramid Schemes.

If all this seems intimidating, try a more traditional part time job. 

However, there are some great products that offer you sales commissions if you sell a product. Here are some random thoughts on legitimate opportunities.

Remember the power of a personal referral for making a sale.

We are relational beings. 

We are, as a result, more likely to be influenced by a friend than a stranger.  Don’t think for a moment that marketers have not figured that out.  This is why a company like ING Direct will offer me $10 to refer you to their bank (and give you $25.00).  They know you are more likely to buy a product if Uncle Joe suggests it rather than some stranger on TV.

I’ve explained that we should be cautious sometimes when we see the name Christian because people automatically trust an organization with the name Christian.

As a person of integrity, I think the ultimate question is – do you believe in the product?  It is a good product offered at the best available price?  If you do, then hosting these parties is a win-win situation.  They get a great experience, a great product, and you get a sale.  Everyone goes home happy.

I recently had a similar issue with Sound Mind Investing.  I work as an affiliate for them, which means I get a little money when people buy their product through this website.  Around Christmas they had a sale that gave a free book to new subscribers.  Unfortunately, (and understandably) the bonus was not offered in addition to the affiliate sale bonus.  The choice – #1: don’t tell my readers and get a payment knowing they don’t get the best deal possible, or #2: wave my right to an affiliate payment so that my readers could get a free book.  In this case, I waved my right to affiliate payments because I would rather promote a product I feel good about that gives my readers the best possible deal.

Remember the power of personal referrals so you can respect its influence, not exploit a friend.

Promote the experience, not the product.

One thing you must keep in mind is that, for many people, shopping is not about the price.  It is about quality or experience.  It is possible that they could go online and get the product on eBay, but where’s the fun in that?  They would rather eat appetizers together, and do other girl stuff, (I don’t know what goes on at a Tupperware party!) and then buy the product.  They paid for a fun night out and got something in return.  If they go home happy, then that is all that matters.

You give people a fun night and they’ll gladly buy your product.

No pressure sale

Because of the power of personal referrals, I would take a very low key sales pitch.  It is not worth making a friend uncomfortable just because they won’t buy.  Find people who you know will be happy to buy and the products will sell themselves. 

If you have to pressure anyone, you invited the wrong person.

You can set the right environment when you invite them.  “Hey, I’m having this thing and I thought you might enjoy it.  We’re going to be selling some ______, but I completely understand if you don’t buy anything.”

Any other thoughts?  Do you have additional advice for this reader?


  1. says

    My wife and I became distributors of a company that markets it’s products through the MLM system a few months ago. We have tried it three times before with other companies. We have learned that there are several types of MLM’s and that ALL of them are highly regulated by the government.

    We joined this company for several reasons. First, we love the concept. Where else can you start a business for a few hundred dollars, with the potential to make a lot of money. We were able to break even in just a couple months. Do that with any other business. Second, We get to do this in our free time. Our life continues the same it did before, and we just redirect some time and apply it to our business. Third, The company we joined has NO competition, and the products cost about 25% of similar products found in stores. Fouth, We found that we would buy this product ourselves so it was a “no brainer” to look into as a business.

    It is true that some people will do well, and some will not in everything, not just MLM. But with MLM, those who don’t really aren’t out much as long as they aren’t left with a garage full of unsold products. In which case, that was not a good company to join. With our company, everything is done over the internet, and we never touch the products, and they cost about $1.

    • Daria says

      Was just curious to know a little more about the MLM you found success with and what the peoduct was that seems to be VERY inexpensive and had appeal for you. Would appreciate any shared further information.

  2. says

    My mom worked for one of these companies before and it was rough going. she made some cash in the beginning, but the problem was she kept hitting up her friends to buy expensive clothing until the no longer where her friends.

    We also have a friend who just started with one of these companies, and her facebook status is always about buying something. I hate it when people pimp their facebook to buy things like this.

    My advice would be find something you can sell to the masses, not to just your friends. Some form of juice or health products at your local farmers market or resell products online. Don’t hit up your friends! they only have so much cash and so much patience.
    .-= Ted´s last blog ..The shame of debt =-.

    • says

      Thanks for sharing this experience. This certainly puts a face on the dangers associated with these organizations.
      Making money in a way that turns friends off is a bad idea.

  3. says

    As an idependent distributor I have the choice in how I manage my marketing plan. Yes, some people choose poorly in who and how they market their business. And yes, this puts a bad mark next to the companies name. This is just one of the hurdles you must get over as a distributor of a MLM.

    But don’t throw the baby out with the bath water here. I don’t have a company representative forcing me to beat my family and freinds up about my business. In fact, I have just the opposite.

    So I would encourage you to put blame where blame is due, and don’t blame a company that is doing so much right. Instead, blame the person that has NO business being in the business. They just wasted their money, and did more harm than good!

  4. says

    I think some MLM businesses are legitimate. I have joined a couple, but have not really been successful. For me, my heart just was not in selling the product. I can only sell something that I see value in for myself and others. I did not see that with the companies I joined. So, if you do decided to commit to an MLM, make sure you are selling something that you are not afraid to put your name on and stand behind. If you saw it in the store, would you buy it? That’s the true indicator if you will be successful or not because those types of business require a lot of work calling leads and selling. Anyone that tells you it is easy is not giving you the whole truth. It requires real work just like any other job. :)

    • says

      I think you are exactly right when you highlight the question, ‘would I buy it?’. To promote a product you don’t really completely belief in will not bring must joy and probably not much money either.

  5. says

    I don’t believe it is possible to promote or sell a product you didn’t like whether it was an MLM or not. As I said, the company my wife and I became distributors for is all that and more.

    We joined because we love the product, and because there is no real competition. Where else can you send a greeting card for about a buck, and from the comfort of your own home and computer?

Leave a Reply

Your email address will not be published. Required fields are marked *