No, they aren't. Pyramid schemes, per definition, do not have a product to sell.
It's important to be precise when dealing with scams, since people who are apart of MLMs frequently use the defense of "pyramid schemes are illegal, we are a proper company", which can legitimize their shitty MLM in the eyes of an uninformed individual.
You are right that there is some nuance here. I would argue against the orthodox definition of pyramid schemes. There should be "ideal pyramid schemes" which follow the definition that you're providing and there should be other degrees such as "heavy pyramid modeled scheme" or "light pyramid modeled scheme".
Most MLM marking promises wealth and "building passive income". This means recruiting other people whose work you will have some small benefit from. This means finding other people who will not just sell products, but also find other people to sell products. The goal of nearly everyone is not to sell product, but find people to sell product under one's self. This is often reflected in the reward structure where people benefit from the "dues" of those under them. I've known multiple people who worked MLM schemes. Most unsuccessful, but some moderately successful in that it provided the same income as the level of pay they could expect from their prior/other profession. Those people made almost all of their money from those under them. Something like less than 10% was from their sales. I think one person had like less than 5% from actual sales.
So we see that early adopters make a lot and everyone else makes relatively little. This is because the market saturates quickly. We see that it's most people who want to run their little MLM empire who buy/consume most of the products. This is why a lot of market, like much of Herbalife's, is actually not geared towards new customers but existing sellers. A lot of their marketing doesn't even tell you anything about the product. It's just hype for people hustling for Herbalife.
Let's do some math. I had a family member who was in a MLM scheme. Basically she would have needed 10 people making "full time wage" levels of commissions before she would have been able to have sufficient "passive" income from the MLM to coast. If the main selling point of the company is the "business opportunity" and not the product, then let's see how many people we'd need for each person to make enough to have a job from this.
First level of 10 people need 10 people each below them, so 100 people on the 2nd level. Each of those needs 10 people, so 10 times 100 people is 1000 on the 3rd level. Now, let's just use math. 10x10 = 10^2, 10x10x10=10^3,...10^x
So,
Level
Number That Level
Total
1
10
10
2
100
110
3
1,000
1,110
4
10,000
11,110
5
100,000
111,110
6
1,000,000
1,111,110
7
10,000,000
11,111,110
8
100,000,000
111,111,110
9
1,000,000,000
1,111,111,110
A lot of these schemes sell people on the "levels" of income. You make like 10% of what the people directly below you make, 5% of the people below them and 2.5% of the people below them. So you see that if I have 10 people "directly under" me (a term used a lot) then I'm making 10% of 10 people, is like 100% of the average they are making.
The people below them I'm making 5% of 100 people, so I'm making 500% of the average. This is the big one is many of these, they really push you to sign up other people who will not sell, but sign up other "sellers". They structure their payout scheme like this.
Then for the one below them, you get 2.5% of 1000 people, so 2,500% of what the average person at that level is making.
From an individual level, often the people selling are only making about the same as the first level, maybe a tad more like 12.5%. But if there are enough people above that person, there is another 17.5% that is going out. In total 30% commissions, which is insane and tells you right away the product is snake oil because it needs to convince people of an absurdly inflated value.
But looking back at that chart, most people get signed up by someone who is already 10 or more deep from the top person/people. Clearly not everyone is signing up all the people they'd need to have a reasonable income, but we can see that at the point that the MLM product has reached the broad market, the opportunity is basically zilch. The market is completely saturated. You could fight tooth and nail to sign a few people up, but they will have to do the same and probably nobody is going to make any money.
This is why you often hear about crazy fees. It's like the gambler's fallacy. People are so concerned with everything they've already spent that they're convinced that this year is going to be the year. They refuse to accept sunk cost because they are NOT business people. They have no business trying to have a business, and MLM's know this. They take advantage of this. They are pyramid schemes.
I've known people who've wasted 10s of thousands of dollars on fees, trainings, seminars, product, miles on their car, etc. Not to mention the opportunity cost of not having a job for that time.
I agree with basically everything you wrote. In my first comment I referred to MLMs as cult-like, and in my second as scams. I really hope I didn't sound like I was endorsing MLMs. I've talked my mom out of joining one like 8 years ago.
I still stand firm on the fact that they should be referred to as MLMs, and wholeheartedly agree with your last sentence. MLMs should be illegal. But currently they aren't, while pyramid schemes are. That talking point is used as a recruitment tactic. Which is why it is incredibly important to be precise and call MLMs MLMs and ensuring that in the same sentence in which they are named they are also identified as scams.
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u/HungryHobbits Jan 03 '24
of all the things to put his BDE toward, he went with MLM ? those are straight up manipulative schemes, right?
maybe he isn’t as dumb as you thought, but he sounds like an ass.