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Consumer Rights.

4 March 2021

How to spot a pyramid scheme

Pyramid schemes are unsustainable businesses that require you to recruit other members to recover your joining fee. Learn how to spot them – and avoid them.
W
Which?Editorial team

What is a pyramid scheme?

Pyramid schemes require you to join for a fee – and the only way to get back your money is to persuade other people to join and take their fees.

Scheme members are asked to sell goods or services through other members rather than direct to clients.

People at the top of the pyramid make money from the fees of people lower down, rather than selling a legitimate product.

The business model is unsustainable, and those at the bottom of the pyramid lose their fees with no prospect of recovering the money.

Caution

In Summary

  • Pyramid schemes are scams based on unsustainable business models
  • Members will be asked to pay large fees or make a big upfront investment in the scheme
  • Members will be required to recruit people to the scheme in order to recoup their fees

Spotting a pyramid scheme

Watch out for the following warning signs of a pyramid scheme:

  • To make money you will be required to sign up other people
  • The scheme involves selling goods and services of little value, for example, goods that serve to promote the scheme such as information booklets
  • There will be an upfront joining fee or large initial investment
  • You’re asked to sell goods or services through franchisees or sub-distributors

If something looks too good to be true it may be a scam. If you suspect something is a scam avoid it and report to to the appropriate authorities.