Thursday, January 25, 2018

Spotting a Pyramid Scheme

There are a handful of ways to tell if a sales opportunity is legitimate or if you should run the other direction. Two in particular serve as very useful litmus tests – the compensation plan and the inventory policy.

Compensation Plans
The primary compensation in a pyramid scheme is from recruiting more participants, not from the actual sale of a product or service. Often, there is an up-front fee required by new members which feeds the up-line. The primary compensation of a reputable organization should be the sale of products or services, not recruitment fees. If the products or services are being sold between reps and not to the outside public, that’s also a major cause for concern.

Southwestern Advantage is a wholesale distributor of educational products and one of the oldest in the U.S. (est. 1855).  As a wholesale distributor, our only method of making money comes from our product sales.​ No money is made by recruiting. 

The primary compensation for our Student Reps comes from selling our products to third-party consumers. Experienced Student Reps often recruit personal teams but are not required or paid to do so. New recruits do not pay any sign-up fees. In fact, Southwestern Advantage provides all initial sales supplies and training free of charge. 

If both the team leader and their team do well in sales, the team leader can receive a rebate on their personal wholesale purchases. This is a rebate, not primary compensation, and comes out of the company's profits. Student Leaders are never paid a portion of the sales that their recruits make. 

Inventory Policies
Participants in pyramid schemes often find themselves stuck with piles of inventory and piles of debt. Inventory loading is the practice of requiring or stiff-arming reps into buying inventory up-front before sufficient customer orders or payments have transpired. Is there an inventory buy-back policy? Is it simple and swift or is it a complex process filled with vague requirements?

Southwestern Advantage Student Reps have no up-front inventory requirements, no sales quotas, and our company immediately accepts back and credits any unsold inventory at the end of the selling season. 

The fact is, there are many legitimate and trustworthy direct sales and multilevel marketing opportunities that benefit millions of participants and millions of consumers. To blindly label any direct sales or MLM opportunity a "pyramid scheme" without considering the facts is plain ignorant. Common sense and some simple awareness can go a long way in both preventing yourself or someone you care about from ending up in an unfortunate situation, or, misjudging a work opportunity that could benefit them.

For more consumer protection information, visit

No comments:

Post a Comment