Saturday, October 22, 2011

Mathematics of Pyramid and MLM Schemes

Pyramid and Multi level marketing schemes are anything but illegal. There are few legal MLM businesses; however they are made to fit into the legal framework compliant of the local laws.

Readers might be surprised on how I term them illegal irrespective of how genuine their business is or how life changing business model they employ because of the underlying mathematics the pyramid schemes employ, all the pyramid schemes finally collapse.

Hypothetical Example:

In a typical MLM scheme, one is required to deposit an initial subscription fee or required to purchase a product. Let’s take an example of the subscription fee being Rs. 10,000 

It is illegal to just collect money, so many fly-by-night MLM operators promise to sell products worth the subscription fee. 99.99% of the time the value of the product will be inflated highly.

Typical examples of MLM products are ebooks, training material, forex trading material, herbal products, skin rejuvenating creams, health products, solar products etc

Now you are required to sell the same set of items to two people in a pyramid fashion.