Pyramid schemes won’t make you rich, FAU students discover

FAU students that engage in pyramid schemes usually end up disappointed.


Cheryl Jarvis said college students likely try pyramid schemes because they are “convenient.” Illustration by Candice Puentas

Kristen Grau, Features Editor

When college students see the opportunity on social media to make $5,000 in two months — a real claim on Instagram — just from using their phones, some will not think twice.


Elyssa Reardon didn’t: the FAU health science major saw an It Works distributor’s multiple hiring calls on Instagram for “all boss babes” to earn those thousands, with the only qualifications to work for the wellness and nutrition company being “Motivated, 18-years-old, coachable and ready to learn.”


After joining, she realized she wouldn’t come close to $5,000. She ended up losing over $300 over the course of four months.


“The whole thing felt like a hoax,” she said.


Businesses — particularly health and wellness companies — like It Works and Herbalife market toward college students, among other demographics, and promise six-figure profits while working from home. But these businesses aren’t following the legal method of multi-level marketing — they’re potentially illegal pyramid schemes. 


Some FAU students, while juggling classes and work, are gravitating toward these in hopes of quickly rising through the company ladder and making a comfortable profit.


They pay costly initial fees to enter and routinely struggle to recruit new members, which makes it almost impossible to make the reliable profit they’re promised.


“If it sounds too good to be true, it probably is,” said Cheryl Jarvis, a marketing professor and chair of FAU’s Department of Marketing.


Brick by brick: how pyramid schemes work


A pyramid scheme is a business model that profits off signing up new people rather than selling the product — which is likely wellness-related, according to the Direct Selling Association.


Pyramid schemes fall under the umbrella of multi-level marketing (MLM), meaning you won’t find these products on shelves. You’ll find them through your friends and family advertising them on social media.


There is one key difference between MLM companies (often called MLMs) and pyramid schemes: The former’s profit is based on product sales while the latter’s profit is based on recruiting new distributors. And if you’re recruited, there’s a 99 percent chance you’ll lose money, according to the Consumer Awareness Institute.


A 1979 Federal Trade Commission (FTC) decision deemed Amway, a home and health company, as a legitimate MLM because they didn’t charge large entrance fees into the company, nor did they have distributors buy a surplus of products to sell that couldn’t be refunded if they weren’t bought, according to the FTC.


This landmark case made pyramid schemes illegal.


Empty promises: the reality of pyramid schemes  


Distributors aren’t told very much about the logistics. Instead, they’re told by their recruiters not to “lose confidence,” Mattie Ralston, a distributor for It Works, said.


The FAU psychology major is a current distributor for the wellness and health company that sells items like plastic stomach wraps, protein powder, and “fat-burners.”


After talking with her recruiter, Ralston was under the impression that the company would be “successful” for her.


“[It Works tells] a lot of success stories about how people lost their jobs and did It Works, then made a lot of money,” she said. “They try to promise it’s a lifetime thing.”


Jarvis, however, said that pyramid schemes are “not sustainable.” If one person were to recruit five people, and those five people recruited five more people to distribute any given product, and so on, you would exceed the planet’s population in just 15 cycles.


Reardon joined to make extra cash. Her efforts to distribute plastic stomach wraps and protein shakes were fruitless. She only pressed on with the four-month endeavor because of the lifestyle that It Works marketed, where dozens of distributors under you make your profit.


Pyramid schemes often pump out narratives like this one on It Works’ site: “Because of It Works, I’ve gone completely debt free! I was able to leave a job that kept me away from home nine months out of the year, including holidays.”


Reardon reached out to people on every platform she could. She couldn’t find a sole willing distributor.


“[MLMs] can be overly optimistic,” Jarvis said. “What’s possible in the one percent [of high-income earners] … may not really be achievable.”


According to the It Works site, only .03% of distributors are at the highest earning level, which is “ambassador diamond,” as of 2016.


Building the pyramid: the work behind the glamour


To climb your way to the top of the pyramid and become one of those top earners, you must constantly be scouring social media and reaching out to potential distributors.


Even those who go through the ranks and find people who will either buy the products or become distributors admit that staying successful can be taxing.


One former Herbalife distributor, an FAU health administration major who chose to remain anonymous, earned eight consistent customers during her five month stint — but no distributors.


With that many customers, she earned around $1,500 in total. She struggled with her weight, so she even bought some products for herself and lost over 20 pounds.


Selling and using Herbalife products was an “overall positive experience,” she said. However, she admitted it’s not a wise long-term commitment.


“With [Herbalife], it’s easy to make decent money,” the former distributor said. “But career money — that’s a different story.”


Ralston said she has only two “loyal customers,” or customers who purchase products for up to three months. She says that it’s hard to earn customers who are sometimes “skeptical” of the products.


It’s not just consumers who are skeptical of online nutrition products — it’s the experts too. Surgery professor and analytical chemist David Gorski from Michigan told the Chicago Tribune that “If [those products] really worked that well, you’d have heard about it and it wouldn’t be sold online for $29.95.”


The drawer in her apartment with six months’ worth of unsold “keto coffee” and “chocolate greens” reminds her how skeptical people really are.


When companies allow those pyramid scheme-like policies, that sometimes hurts distributors’ wallets — one of them being Reardon.


Reardon, a former It Works distributor, said she paid $80 monthly fees, along with a $99 entrance fee, that she felt was a “waste of money.”

Tempting, but draining: why students quit

Jarvis said that one reason college students may be attracted toward pyramid schemes and multi-level marketing is because they’re convenient.


The claims that distributors can make their home, a beach, or a coffee shop their office are true. You can work from your phone and make your own hours. According to Jarvis, this is an effort to appeal to “susceptible” demographics, like stay-at-home moms and college students.


Despite the flexibility, the work’s nature outweighs the perk of laying in bed, some distributors say. Reaching out to people through social media, which is the bulk of their job, could be awkward.


“I would follow a bunch of people on Instagram and [direct message] them, ” Reardon said. “The team leader makes you follow up with people who are leaning towards doing it, but I felt annoying and forceful. I did not like bothering strangers and trying to make them make this huge decision.”


So is trying out these kinds of companies worth it? For many, the answer is no.


“I definitely do not recommend it to anyone who needs extra cash,” Reardon said. “It’s a lot of work and the success stories are few and far between.”


How to spot a pyramid scheme


There are a few ways to tell legal multi-level marketing (MLM) companies and illegal pyramid schemes apart.


Not every MLM business model is a pyramid scheme — there are uncanny similarities, but also subtle differences in their policies. Marketing professor and chair of FAU’s Department of Marketing Cheryl Jarvis argues the following are a few key characteristics that college students can use to differentiate between the two if they’re considering signing up.


Is the focus on selling the product, or recruiting new members? If the company puts more emphasis on recruiting more distributors, then it’s probably a pyramid scheme. The FBI said that in pyramid schemes, “the real profit is earned, not by the sale of the product, but by the sale of new distributorships.”


Have there been FTC lawsuits or investigations? The Federal Trade Commission (FTC) regularly investigates companies that are borderline pyramid schemes. For example, the FTC said it mailed checks to nearly 350,000 people who lost money to Herbalife, a pyramid-based nutrient company in 2016. Jarvis says to “do your research.”


Does the company offer refunds on unsold products? Mattie Ralston, a current ItWorks distributor, has a drawer at home full of wellness products like “keto coffee” and “chocolate greens” that she has yet to sell. She can’t refund them with It Works — unless she pulls out of the company entirely. With legitimate MLM companies like Amway, distributors can return most products for a small fee.


Kristen Grau is the features editor of the University Press. For information regarding this or other stories, email [email protected] or tweet her @_kristengrau.