You may be familiar with door-to-door salesmen offering beauty products. This is the type of activity Avon has become associated with. But before you make a purchase or join as a rep, you will want to know if Avon is a pyramid scheme.
Avon is not a pyramid scheme. They are a direct selling company for beauty products. However, after over 125 years of business, they have had their fair share of controversy.
Is Avon a Pyramid Scheme?
Avon is not a pyramid scheme, they are a multi-level marketing company that uses a direct selling model. Direct selling is a different business practice than what you commonly see.
Typically the manufacturer who creates a product sells items to retailers. It is these retailers such as the physical stores that you would go shopping in that actually sell the products.
However, with direct selling, these items are being marketed directly to the consumer without a retail store. The methods they use include in-home sales. This is something that can be referred to as an Avon party.
One person hosts an event where their friends and neighbors join together to eat and drink. They are given an opportunity to learn more about the products. Purchases can be made at that time. Also, representatives visit places of work in order to sell their product one on one with customers.
How Avon Works
Avon sells their products through direct selling. You see this most commonly with representatives selling door to door. However, in a true sign of the technology age, it is rare for people like myself to be willing to answer the door.
These same changes in behavior occur over time in other forms such as email. People used to always check their email. However, with the increase in spam it is less trusted.
There is a certain level of fatigue with sorting through what is marketing and what is valuable information. Because of this, people have put less importance on email. We have an article about receiving spam emails from people in your contact list that you can read here.
Another type of distribution channel used by Avon is selling at workplaces. Some companies allow representatives to give presentations during lunch. Any way the rep can reach potential buyers face to face is explored. In recent years, it has even been possible for Avon products to be ordered online.
How Avon Started
Avon began selling jewelry in 1886. It consisted of one man selling door to door in New York. In 1932 as the company grew the name was changed to Avon. This allowed them to have a wider appeal.
Is Avon Still in Business?
Avon is still in business with activity all over the world. However, within the last decade, they have begun to scale back their operations in some locations.
This is a common activity for all companies. As the economy shifts businesses do the same in order to stay profitable. In the good times during a surplus it is common to invest more in the company and increase hiring. This is a good way to put their profits back into the company to aid in its growth.
When a recession hits the economy, that is when companies start to become leaner. Rather than losing money and risking the success of the entire operation they limit their operations and cut their losses.
So even if Avon no longer has representatives in your area, Avon is still around.
Is Avon Jewelry Worth Anything?
Avon’s products are of good quality sold for appropriate prices. This is one reason why they cannot be considered a pyramid scheme. Because they actually put time and effort into providing a product that is worth the price.
In a pyramid scheme, the product itself would be nearly irrelevant. The company would instead make its money through recruiting. That is not the case with Avon. They do market research, and change their products and marketing to reflect current trends. This makes their product continuously relevant.
Although Avon products are made overseas in places such as China, the quality is as advertised. This means their jewelry is made with real precious metals and gemstones unless otherwise specified.
Avon also allows returns within 45 days. All of these facts support the idea they are an upstanding business.
Does Avon Test on Animals?
Avon has committed to making its products cruelty-free. Because they no longer allow their products to be tested on animals, they have gained the approval of People for the Ethical Treatment of Animals (PETA).
This was not always the case. Believe it or not, some countries such as China require animal testing. While most countries are doing everything in their power to prevent this, some places do the exact opposite.
This is seen as one way to protect humans from bad products. Avon is one company that has stated its intention to confront these regulations and find alternatives.
How a Pyramid Scheme Works
No one can pinpoint exactly when the first pyramid schemes started. The original scheme was likely in the late 1800s.
So figuring out who created the original pyramid scheme may not be possible. Most people reference Charles Ponzi. But as I explain later in this article, Ponzi and pyramid scheme are not the same.
Regardless of who invented the pyramid scheme or when the definition is clear. They are best explained as a business model where a product is marketed and sold by salespeople.
They earn money from each sale and even recruit more people to join as representatives as well. Now they earn money from that earned by the recruit. So far, this meets the explanation of a multi-level marketing company.
However, how a pyramid scheme works is the focus is placed on recruiting instead of the product. Meaning, the item sold may be of poor quality or not in demand. The organizers of the scheme make money because their employees recruit more salesmen.
How you make money in a pyramid scheme is by recruiting more people under you. This is called a downline.
How many levels a pyramid scheme can have depends on the available pool of potential recruits. This is considered exponential growth because each level is responsible for recruiting a set number of people. Once this resource runs out, the scheme begins to fall apart.
An alternate name for a pyramid scheme is franchise fraud. Other names include chain referral fraud and more generic terms such as a rip-off.
Finally, something is called a pyramid scheme if it focuses on recruitment as its main source of income instead of sales of a product. Pyramid schemes do have and sell products. This is used as a cover so they appear like a real business.
Examples of Pyramid Schemes
An example of a pyramid scheme could include a company selling beauty products. The product itself is not important. This could be anything from makeup, shampoo, skincare or toothpaste. It doesnt even have to be in this field. Some pyramid schemes invole financial advisors or real estate.
For this example, we’ll start with a jewelry company. That’s because Avon also sells jewelry. We can compare their practices with what we know is a scam.
The companies hires representatives to sell jewelry directly to customers. Often the representave is forced to buy the products themselves from the company before they sell it.
The representative then makes inflated claims about how much they can earn to entice recruits to sell the company’s products too. The original rep then makes money based on how much the recruit can sell.
The recruit must find their own recruits in order to make any substantial income. The jewelry is overpriced, of poor quality, and no market research was done to ensure it would appeal to buyers.
This example of a pyramid scheme shows why they are not sustainable. There will not always be people left to be recruited. The jewelry will not be sold enough for anyone to make a real income.
Pyramid Scheme vs MLM Scheme
A multi level marketing scheme, or network marketing, is not considered a scam at all since they are legal.
The MLM scheme involves recruiting as many salespeople to work under you as possible. This earns you money based on how many sales they make. This allows you to make more money with someone else doing the work.
MLMs are not pyramid schemes because they have a legitimate product which is the source of most profits. This is the main difference between an MLM and a pyramid scheme.
When trying to determine if a company is a pyramid scheme or MLM, there are questions you can ask. High startup costs are more closely associated with pyramid schemes. Meanwhile, MLMs typically are more transparent about trying to promote a product and recruiting is secondary.
Direct Sales vs Pyramid Scheme
Direct selling simply refers to a salesperson making one on one contact with prospective buyers. This is opposed to customers seeing advertisements and going to a physical store.
For example, a representative of an MLM may go door to door or places of business. There they try to convince each person make a purchase directly from the rep.
In a pyramid scheme, representatives may use direct sales tactics to make sales. The difference between direct selling and pyramid schemes is the first is a method of selling and the latter is deceptive organizational structure.
The term pyramid scheme encompasses the totality of the companies practices not just their sales tactics.
Pyramid Scheme vs Ponzi Scheme
Pyramid schemes and ponzi schemes are not the same. However, many people don’t know the difference between the two. So they are constantly used interchangeably.
The difference is a Ponzi Scheme begins with the victim believing they are investing their money. This is typically in the form of the stock market or Forex trading. In a pyramid scheme, the victim believes they are being employed as a salesperson and are purchasing merchandise to sell.
In a Ponzi scheme, the organizer uses the money invested by new recruits to trick original investors into thinking their investments are working. However in a pyramid scheme, the new recruits are being hired by current salespeople.
The organizational structure of a pyramid scheme gives it its name. In a Ponzi scheme, it is more of a circled with the organizer in the middle.
Why Do Pyramid Schemes Exist?
Pyramid schemes have been around for over a hundred years and still exist today. That’s because they are a fairly simple scam that continue to work. At least they work for the scammer, and that is why they still exist.
Depending on how careful the organizers are, a pyramid scheme can last many years. Considering the money stolen by these scammers, these schemes do actually work.
The problem is these scams do not make money for a large majority of those involved. Is it the mass of people on the bottom of the pyramid who lose their time and money when the scheme fails.
Despite being promised a full time income, you will not get rich from a pyramid scheme. At first it may seem like you can be successful in a pyramid scheme. It’s even possible you will make money in the beginning,
But after some time you may feel like you are running on a treadmill. You will realize no matter how hard you work, the pool of possible recruits will dry up.
The company will blame it on your work ethic but you know that is not the case. When a pyramid scheme runs its course and no one is left to recruit, it fails.
Is a Pyramid Scheme Illegal?
Pyramid schemes are illegal in the U.S. and the United Kingdom, among other countries.
In the United States, they are primarily dismantled by federal law enforcement. They have the resources to conduct lengthy investigations of large companies. But also, there are law at the state level, in most cases that cover fraudulent business practices.
These schemes are illegal because they use deceptive business practices. They make you believe they are selling a product. In reality they are simply collecting fees and signup costs for people looking for employment.
The organizers of a pyramid scheme may pay taxes on their profits. While this may help them avoid tax evasion charges, this does not mean the scheme as a whole can be legal. If it were, it would be considered an MLM.
Because these schemes violate state and federal law, you can go to jail for a pyramid scheme. The jail time involved depends on the priors of the accused and the severity of the scam.
If you fall victim of a pyramid scheme you can sue in civil court for any damages you incur. Depending on the lawsuit, you can recover your money and possible be compensated for your time and suffering.
For more information about laws pertaining to these scheme, visit the FTC’s website at https://www.ftc.gov/about-ftc.
Are Pyramid Schemes Unethical?
Like all scams, pyramid schemes are bad. They prey on the desperate and steal people’s money. They rely on lies to trick people into participating in illegal activities.
The full toll these schemes have on people may not be readily apparent. When someone is the victim a crime, they lose trust in others. This can change their outlook and impact their interactions with others in the future.
Biggest Pyramid Schemes Ever
Herbalife Pyramid Scheme
Founded in 1980, the Herbalife scams ran from 2009 to 2015. They sold supplements and skin care products.
In a 2016 settlement with FTC, they were ordered to repay $200 million dollars in damages. Instead of being shut down, they were forced to restructure their company. Let’s hope they learned their lesson.
You can visit the FTC website for a refund if you did business with this company during this time. https://www.ftc.gov/enforcement/cases-proceedings/refunds/herbalife-refunds
What Companies Are a Pyramid Scheme?
Take a look at the information below so you know which companies are pyramid schemes. That way you can better avoid ever being associated with them. Be advised not all companies on this page are pyramid scheme organizations.
The following businesses have at one point in time been accused of being a pyramid scheme. This designation is left up to the government. However, you can use this information to keep yourself safe.
List of Pyramid Scheme Companies
Amway Pyramid Scheme
Is Amway a pyramid scheme? According to the FTC in 1979, Amway was misleading about the potential earnings of distributors based on recruiting. This was a major case in determining what is and what is not a pyramid scheme.
This was over 40 years ago and does not imply it is currently a scam. Also settled in California in 2010 for $100 million dollars for similar activity. You be the judge.
Monat Pyramid Scheme
There is no evidence Monat is a pyramid scheme. However, I would stay as far away from them as possible.
The FDA found serious problems with the quality and safety of their products in 2019. Also, they use poor marketing tactics to capitalize on fear and unfairly target the unemployed, according to Business Insider.
I actually know someone who works for Monat. She makes a strong case she is working for a pyramid scheme by her hard selling tactics. It’s hard to judge the company as a whole for one person’s behavior. But you have to wonder where they learned it.
Arbonne Pyramid Scheme
Arbonne International founded in 1980 targeting vegan skincare, cosmetics, and nutrition products. Their products were recalled numerous times between 2009 through 2017.
A 2017 lawsuit in California claiming they were a pyramid scheme was dismissed. Still, they were also warned by the FTC about misleading income claims. Even though they do not meet the strict definition of a pyramid scheme, they are still a company to avoid.
Primerica Pyramid Scheme
They are considered by some to be a life insurance pyramid scheme. However, don’t let their reputation cloud your judgement.
In addition to insurance they also provide investment services. A noteworthy Primerica lawsuit involved someone affiliated with the company. They allegedly defrauded customers out of $4.2 million dollars in a Ponzi scheme.
This was not a pyramid scheme and did not involve Primerica as a whole. This was a bad act by this one person. Therefore I would not classify Primerica as a scam. This goes to show you that not all MLMs are pyramid schemes.
Cutco Pyramid Scheme
The Cutco Corporation sells knives as opposed to most of the MLMs I’ve found that focus on jewelry and cosmetics. When people research if Cutco is a pyramid scheme, they may find information about their sister company.
A sister company is one that is closely related and possibly even owned by the same corporation. In the case of Cutco, their sister company was accused of being a scam.
The problem was with them making their salespeople purchase sample kits for their sale demonstrations. This is something they no longer do and should not be held against Cutco. So I strongly believe Cutco knives are not a pyramid scheme.
Young Living Pyramid Scheme
Since its founding in 1993, it has faced a lot of legal trouble. This includes the safety of their products and using illegal oils. The Young Living pyramid scheme sells essential oils.
A Young Living pyramid scheme lawsuit started in 2019 and was based out of California. The allegations claim very few people actually make money. Also, the company relies too much on recruitment.
These kinds of lawsuits can take many years to settle. So it may be best to withhold judgment during pending litigation. However, I will be steering clear of this company and advise you to do the same.
doTERRA Pyramid Scheme
doTERRA sells essential oils and was founded by former members of Young Living. Because of the slip between the companies, they were sued by Young Living in 2013.
They claim doTerra stole their trade secrets such as how they make their oils. In this lawsuit, doTerra did nothing wrong. Young Living had to pay their attorney fees for filing a wrongful lawsuit.
However, doTerra was warned by the Food and Drug Administration (FDA). They were making claims about what ailments essential oils can cure. While the benefit is these oils is highly debatable, I see no evidence they are a pyramid scheme.
Beachbody Pyramid Scheme
The Beachbody Company sells supplements, diet programs, and workouts. According to Truth in Advertising, in 2017, they and their distributors were making inflated claims. These claims were about the earning potential of sales recruits.
This is not enough evidence to show BeachBody is a pyramid scheme.
Mary Kay Pyramid Scheme
Mary Kay sells cosmetics like Avon. They were accused in 2012 by a journalist of being a pyramid scheme. However, when looking at the allegations, nothing was substantial.
One of the claims was most sales occurred between the company and the salespeople. However, the purchase of inventory by these salespeople is not mandatory. The motivations of this journalist are questionable. And Mary Kay acts like most MLMs.
Rodan and Fields Pyramid Scheme
Rodan & Fields sells skincare products. I was not familiar with this company because I began my research. But they have been accused by some as being a pyramid scheme.
This is because very few people make more than minimum wage working for the company. Poor earning potentials alone are not enough to classify this company as a scam.
Thrive Pyramid Scheme
The Le-Vel company sells health and wellness products under its Thrive brand. There is no direct proof at this point they are a pyramid scheme. However, they have been accused of making inaccurate income claims and having unsafe products.
Their business appears flimsy and best. I would not be surprised if they are investigated further in the future. Do yourself a favor and avoid this company.
Plexus Pyramid Scheme
Plexus Worldwide sells weight-loss supplements. In 2014, the FDA warned them about claims their products treated certain ailments they could not prove. Also, I am wary of their high startup costs.
Despite their shortcomings as a company, they currently fall short of the definition of a pyramid scheme.
The Blessing Loom
This pyramid scheme has many names. You can call it a blessing loom, gifting circle, gifting table, or Sou-Sou, or us-us. Regardless what you call it, I call it all a scam.
Gifting and community investment pyramid schemes all have the same basic concept. If you are familiar with a a Ponzi scheme, they are very similar in structure.
A group of people agree to give the organizer an equal amount of money. Let’s say 20 people give $100. One person then receives two thousand dollars. This sounds like a great investment. The promise of turning $100 into $2,000 is what draws people to gifting schemes.
However, these schemes usually fall apart because not everyone ends up getting a turn collecting their big payout.
They rely heavily on recruiting more participants. Once these participants become hard to find, there is not enough money left to distribute. This is because the organizers have secretly been using the money invested on themselves.
Forex Pyramid Scheme
When you think of Forex trading think of Wall Street. Only instead of investing in stocks you are buying and selling foreign currencies.
People think Forex is a scam because there are many scammers out there who use it for this purpose. They prey on less experienced investors and many pyramid and Ponzi schemes use Forex.
However, overall Forex is not a pyramid scheme. It’s not a Ponzi Scheme either. In fact, I have two articles dedicated to Forex. One explains is Forex Trading legal. The other answers the question is Forex a Ponzi Scheme.
Crypto Pyramid Schemes
Bitcoin and Ethereum are two of the most popular crypto currencies around. At any given time, they can be worth a lot of money.
If you have read any of my other articles about scammers one thing is consistent. Wherever there is a large about of money changing hands you will find someone devising a scam.
Cryptocurrency pyramid schemes do exist. They primarily involve bad brokers who give inflated estimates on how much money someone can earn by investing. Meanwhile, the money goes into their own pockets. This is more like a Ponzi Scheme until you add the extra layers of recruiting.
An example of real crypto scams were called Bitcoin Funding Team and My7Network. Social media was their main means of recruiting. Overall they were forced to pay just shy of one million dollars in restitution.
If you simply do not trust crypto because it is not backed physical assets or you think it’s a pyramid scheme, stick to the stock market. The regulations set in place have been time tested. No system in 100% safe but it is more stable.
How to Spot a Pyramid Scheme
|Deceptive Claims About Profits|
|Recruitment Main Source of Income|
|Little or No Market Research|
|High Startup Costs Required|
|Too Good to be True|
Pyramid scheme tactics generally include one or more of these practices.
Deceptive Claims of Profits
Representatives trying to recruit new reps will tell you how easy it is to make a lot of money fast. There is no legitimate get rich quick opportunity. The recruiters are simply motivated to have you join so they make money.
An example of a typical recruiting pitch would include claims about how profitable it is. They promise a large amount of money, nice houses or new cars. Regardless of the company the script is usually very similar. They claim you can make more money with less work than their competitors.
Recruitment Main Source of Income
Another warning sign of a pyramid scheme is the focus on recruitment instead of selling the product. There would be more incentives to hire more reps even though the products are selling well. In a legitimate company you would expect to see high sales requiring more employees.
Little to No Market Research
The focus on recruiting means the product will suffer. Look for companies with a long history of poor quality control. They are not interested in making the best product. They don’t even care if it sells.
High Startup Costs Required
This red flag includes the requirement by sales reps to buy the company’s products. This ensures the organizer makes money in the scheme. But the reps are often not able to sell all of their inventory. Now they are stuck with these products the company will not buy back.
Too Good to be True
Finally, A great way how to tell if something is a pyramid scheme is when there is no downside. Scammers will rarely tell you anything negative about the opportunity. This makes their claims sound too good to be true. And they are.
Should I Sell Avon?
Whether or not you should join Avon as a representative and sell their products depends mostly on two things.
First, do your personality and skillset allow for learning how to be a successful salesperson?
Regardless of how much interest you have in beauty products, this is more of an industry about sales and marketing. Your skills dealing one on one with potential buyers will make the difference whether you will be successful joining an MLM.
Second, this can be a lot of work and there is no guarantee that you will be successful. So with any business decision or change in career, there are always risks.
However, Avon is a reputable company and you will not have to contend with scams or fraudulent business practices. This is one less thing to worry about. So you can focus on learning the business, improving your skills, and becoming successful.
How much can Avon Reps Make
Avon representatives get paid for every product provided by the company. This allows them to focus on sales and not designing and creating merchandise. This is how an Avon commission works. They can also make money for products sold by reps they recruited.
How much an Avon rep can make depends on how many sales and referrals they make. Throughout my research a consistent fact about MLMs has arisen.
Most people do not earn as much as they are led to believe they can. When they don’t they are told it is because they didn’t work hard enough. However, the structure of an MLM doesn’t promote high earnings by a majority of reps. It is only the organizers that see a full time income.
Why Avon is Successful
Avon is successful because their representatives are normal people like you and me. One of the biggest drivers in sales is a good quality personal recommendation. anytime a salesperson can gain trust with a customer, it is more likely for a transaction to take place.
Likewise, when you trust someone because you have common interest similarities where you know the person, you are more likely to take them up on their offer. *why is avon bad, *why avon failed, *why did avon fail,
How to Get Out of a Pyramid Scheme
If you join a pyramid scheme what happens is you are led to believe you have the opportunity to earn a lot of money. Sometimes just the promise of earning a full time living can be enticing.
There are many people who want to work on their own terms or be their own boss. Pyramid scheme organizers are expert recruiters and prey on the desperate.
Pyramid schemes are never worth it in the long run. When the money runs out, you will be left broke and without a job. Worse, you could be involved in criminal or civil prosecution.
The good news is it is never too late. You can get out of a pyramid scheme. Some schemes force you to make an initial purchase of product. Typricallt this is not an expense you can recover. But just knowing you no longer need to be alliifated with a scam is good enough.
The best response to pyramid scheme is to cut them out completely. This is the best way how to say no to a pyramid scheme.
This is because your involvement is crucial to them. They will not want you to leave without trying to persuade you to stay. A master manipulator will try to point of potential negatives of leaving or what you will be missing out on. However, once you know it’s a scam, there is really only one option.
If your friend is in a pyramid scheme what you do depends on what value you place on that friendship. If your friend understands they are involved in a scam it is much easier. Be supportive and answer any questions they may have.
Ensure they will be financially stable. Dispel any lies the pyramid scheme organizers may be telling them.
When you have a friend in a pyramid scheme who doesn’t understand the dangers, it is much more difficult. Trying to convince them of the truth could hurt your relationship with them. Provide them information but more importantly provide them other options.
They may find they can find a more stable income elsewhere. Regardless if they accept they are in a pyramid scheme or not they may be willing to leave for a better option.
How Pyramid Schemes End
The reason why pyramid schemes fail is because they run out of recruits. A typical business will never run out of potential buyers. This is because of repeat purchases and also because they are more customers than perspective employees.
Pyramid schemes fail when no more recruits can be found. This is their main source of income. More so than the sales of any product. Without the income from recruits, there is a lack of money flowing up the pyramid. People leave or report the company to law enforcement.
When the government takes legal action against the organizers of a pyramid scheme this can be the final straw. This can commonly led to a prison sentence, restitution, and a heavy fine.
How to Report a Pyramid Scheme
How pyramid scheme victims report the scam is easy. The first step would be to contact your local police department. This is a good way to make sure your experience is documented. Most likely they will refer the investigation to other agencies for further action. This saves you from getting he runaround.
Next, you can file a complaint about pyramid schemes online. The process is very simple. Collect and download any documents you think will be helpful ahead of time.
The best place where to report a pyramid scheme is to the FTC. Visit their website directly at https://reportfraud.ftc.gov/.
Avon is an example of a multi-level marketing company (MLM). They are not a pyramid scheme.
MLMs have a similar structure to pyramid schemes. But MLMs like Avon sell good products. They have a long history of door-to-door jewelry sales. As opposed to pyramid schemes, Avon salespeople make money from sales more so than recruiting.
Throughout my research, I have gained a solid distrust of MLMs. Regardless if they conform to the letter of the law there is one major problem. A vast majority of their salespeople do not make much money.
Buying from Avon is fine and you will not be supporting a pyramid scheme. However, I do not recommend you work for any multi level marketing company.
If you have ever worked for an MLM, I’d love to hear your story, please e-mail me directly.