Pyramid Business Plans	
Pyramid Business Plans (page 1 of 2)	
Multilevel marketing, network marketing, or pyramid business plans are a
 way of selling products (such 
as fitness powder, vitamins, or kitchen cookware) through distributors (sales agents who sell the products). 
Then, distributors earn sales commissions not only for their own sales, 
but also for sales made by other 
people they recruit to sell the products.  NOTE: Sales commission is money that a salesperson earns based 
on the amount of sales completed.  For example, if a salesperson earns 15% commission on sales — and 
sells $1,000 of the products, the sales commission is $150 ($1000 times .15).
Multilevel marketing or pyramid business plans promise that if you sign 
up as a 
distributor (salesperson), you will receive a sales commission:  a) for your sales, and 
b) for the sales of people you recruit   — talk into becoming sales distributors also. 
Those you recruit to become distributors may be friends, family, or others.  
People you recruit to become distributors are referred to as your "do
wn -
line."  The real money-making goal of pyramid plans are to recruit 
distributors who recruit other distributors — not to sell products.  
BEWARE if a sales business opportunity offers to pay you 
commissions for recruiting new distributors!  Most states outlaw 
this type of business, which is known as pyramiding — stacking or 
hiring  new distributors under you.   State laws say that a legal business plan should pay sales 
commissions for the sale of products to customers — and not for recruiting new distributors.   Why is 
pyramiding illegal?  Because the only people who make money are the peop
le who started the pyramid 
business plan and quickly recruit as many distributors as possible to pu
t under them,  before the pyramid 
plan crashes.  Plans that pay commissions for recruiting new distributors always collapse when no new 
distributors can be found.  When a plan collapses, all distributors lose their money except those at the top 
of the pyramid (who started the pyramid plan).
If  you’re  thinking  about  starting  your  own  business  by  joining  a  "business  plan,"  take  time  to  learn  about                                                                   
                                                   
the plan by getting answers:  1) What is the company’s history?  2) What products does this company sell?  
3) Are the products good?  4) Does the company have written evidence to back up the claims about its  product?  5) Is the product priced right?  6) Will the product appeal to many 
customers?  7) How much does it cost to join the plan?  8) Is a minimum 
monthly amount of sales required to earn money?  9) Will you be required 
to recruit new distributors to earn your money?
Be skeptical (have doubts) if a distributor tells you that for the price of a 
Start-Up Kit or "inventory" of sales booklets and products (such as a set of 
knives that may cost $500), you’ll be on the road to riches.  For the Start-Up 
Kit, you will end up spending your money to:  1) Attend training classes or 
buy training books.  2) Buy sales leads — names of customers who may be 
"fake customers."  3) Purchase products to sell such as knives, health juices, 
or beauty products.

Permission to use with usworkworld.com subscription.  	Pyramid Business Plans (page 2 of 2)	
QUICK CHECK:
1. a) List the names of 3 types of business plans 
that sell products through distributors.
  b) Define "distributors."
2.  a) What is sales commission?  b) If salesman 
earns 20% commission and sells $3,000, what 
is the sales commission for that sale?
3.  If you sign up as a distributor, what 2 things do 
these plans promise you will receive?
4.  a) Define "downline."  b) What is the real goal 
of pyramid plans?
5.  a) Of what should you beware?  b) Why?
6.  a) State laws say that legal business plans 
should only pay sales commissions for what?  
b) And not for what?
7.  Why is pyramiding illegal?
8.  a) Who loses money when the pyramid plan 
crashes?  b) Who does not lose money?
9.  List 3 of the 9 questions you should take time  answer before buying into a sales business plan.
10.  List 3 things you may spend money to buy for 
the Start-Up Kit.
11.  If you become a distributor, for what 2 claims 
are you legally responsible?
12.  What does the FTC advise you to do?
13.  Briefly list 4 suggestions from the FTC that start 
with the word "Beware."
14.  When may written documents be used?
15.  Define "shills." 
16.  After age 18, you may be approached by a 
  person who wants to sell you a sales business 
opportunity that promise to make you quick and 
easy money.  List 3 tips from this lesson that 
will help you spot illegal pyramid business deal.
17.  If that person does not want to give you written 
documents that prove his/her promises, what 
should that make you think about the sales 
  business deal he/she is offering to you?
Your Legal Responsibility
If you decide to become a distributor to sell products, you are  legally responsible for: 
1) Claims and promises you make about the company and its products.  2) Claims you make about how 
much a new distributor will earn.  The Federal Trade Commission (FTC) advises you to verify (check out) 
any claims you hear or read before repeating those claims to another distributor you are trying to recruit.  If 
you are not honest to others, you may be sued in court case and lose.  The FTC suggests you use common 
sense and consider these tips when deciding to sell products.
•  Do not join any plan that includes commissions (money) for recruiting other distributors.  It is most 
likely an illegal pyramid plan. 
•  Beware of plans that ask new distributors to purchase expensive products to sell and training books. 
These plans may be pyramids in disguise. 
•  Beware of plans that say you will make money by "continued growth of 
your downline" — that is, the number of distributors you recruit.   This is 
an illegal pyramid plan.
•  Beware of plans that claim to sell miracle products or promise huge 
earnings.  Ask promoter to prove claims in  writing.  Written documents 
may used to sue the promoter (who sold you the business) in court case. 
•  Beware of shills — "decoy" people paid by a plan’s seller to lie about 
the money you can make.
•  Don’t pay or sign any contracts in an "opportunity meeting" or any other 
pressure-filled event.  Take the paperwork home and think over your 
decision.  Talk to family member, friend, accountant, and lawyer. 
•  Do your homework!  Check with the FTC about any sales type business you are considering —          
especially when claims about the product or your future earnings seem too good to be true.
For more information, visit www.ftc.gov.   
Search for "Pyramid Schemes."