As the Results Approach Kits volume increases as a percentage of the total volume in a network, since this is not “actual consumable volume”, beyond the risk outline in the previous section above, there is a tipping point reached where upon the network ceases to be a viable consumer network and is in fact a pyramid. This is based on the definition of a pyramid scheme as stated on the DSA Web Site.
Potential Volume and Pyramid Scheme Tipping Point:
If a Consultant is building her network with mainly or only business builders who are placing large orders, then all of that volume is potential and is not actual consumable volume. Since research shows the failure rate is between 50 to 80%, this means a portion of this volume will never be converted from potential to actual consumable volume and by definition is a one-time purchase.
As more and more business builders are added to the network with large orders of Result Kits, the percentage of potential consumable volume, in the form of what is essentially business aids, continues to increase at a dispraportional rate to actual consumable volume. As these one-time orders flash out of the network, when the percentage of this flash out volume is greater than the actual consumable volume within the network, the network hits the pyramid scheme tipping point. At this point, the network, by definition, is a pyramid.
The following is taken from the DSA Website:
“How to tell the difference between a legitimate business and a disguised pyramid scheme”
How much are you required to pay to become a distributor?
…Pyramid schemes, on the other hand, make nearly all of their profit on signing up new recruits. Therefore, the cost to become a distributor is usually high. CAUTION: PYRAMIDS OFTEN DISGUISE ENTRY FEES AS PART OF THE PRICE CHARGED FOR REQUIRED PURCHASES OF TRAINING, COMPUTER SERVICES, PRODUCT INVENTORY, etc….
Will the company buy back unsold inventory?
IF YOU COULD BE STUCK WITH UNSOLD INVENTORY, BEWARE! Legitimate companies which require inventory purchases will usually "buy back" unsold products if you decide to quit the business. Some state laws and the DSA Code of Ethics require buy-backs for at least 90% of your original cost.
- IF THE ANSWER IS NO (OR NOT MANY), STAY AWAY! This is a key element. Multilevel marketing (like other methods of retailing) depends on selling to consumers and establishing a market. This requires quality products, competitively priced. Pyramid schemes, on the other hand, are not concerned with sales to end users of the product. Profits are made on volume sales to new recruits, who buy the products, not because they are useful or attractively priced, but because they must buy them to participate. Inventory purchases should never be more than you can realistically expect to sell or use yourself…
Warning Signs of Fraud
- 5. A large fee payable before you receive anything in return
How to Prevent the Pyramid Scheme Tipping Point:
There are only two ways to prevent the Result Kit orders from being a pyramid.
- Sell all the kits which would then convert the volume from potential consumable volume to actual consumable volume.
- Or have an equal amount of volume in “NEW” customer sales to balance out the potential volume that will not be converted.
Both of these options are proven to have a deficit.
- As previously discussed, because the failure rate is between 50 to 80%, sooner or later Item #1 does not occur. This is true no matter how much one hopes and believes it can be done. This means the majority of the profits in this network are from recruits and business kits, which by definition makes this network a pyramid.
- Due to the failure rate of 50 to 80% there are rarely enough NEW customer sales to balance out the Results Kits that were not converted from potential consumable volume to actual consumable volume. The potential of failure is increased exponetially when large up front orders are part of the local network. If a Consultant signs up four other Consultants with a $2,500 order each, if none of these kits move then to compensate for this so the network does not hit the pyramid tipping point the Consultant would have to have $10,000 in actual consumable volume orders. But the hard cold facts are this does not happen in networks that use the Results Approach.
So neither of the above addresses the ethical issue of those Consultants who reside in that portion of the sub-network where the process failed and as a result were personally impacted. It can be argued on a percentage basis that the overall network is not a pyramid, but for those who were impacted by the sub-network that was processing as a pyramid, the pyramid impact was 100%.
For some it may be a legitimate debate as to what percentage of potential consumable volume from Results Approach Kits there must be in a network to create a tipping point that would transforms the network from a legitimate consumer network into a pyramid scheme. But when the rate of failure is taken into account in the Results Approach this becomes crystal clear as any potential volume that is not converted to actual volume is by definition front loading and thus makes the system a pyramid.
And let's take intent out of it. According to the law and also the DSA web site, intent does not determine whether a network is legitimate or a pyramid. It is how the funds are generated that determines this. And in the scenario we just outlined with the potential volume, the failure rate and the tipping point, "Houston, we have a pyramid!"
So to summarize, the percentage of volume in a Consultant ’s network that is generated by Results Approach Kits, since this is potential and not actual consumable volume, this type of volume in the network, by definition, makes it a pyramid. And if you have a 50% to 80% failure rate in converting the Results Kit volume from potential consumable volume to actual consumable volume, then the majority of the profits in this network are generated by business builders, not consumers so by definition you have a pyramid network.
Pyramid Scheme Impact on Sub-networks:
Further complicating the issue is that even though networks that have large percentages of potential consumable volume are, in and of themselves, by definition a pyramid, these networks are not evaluated as to their own performance. Rather, their effects are washed out by absorbing their percentage of potential volume into the greater actual volume of the up-line’s network. And because the up-line network is usually a larger network the potential consumable volume as a percentage of the overall volume makes it appear that the overall network is no where near the tipping point of a pyramid scheme. But none of this addresses the effects on the localized sub-network where the majority of the potential volume from the Results Kits flames out and results in a pyramid.
Before accepting a position in graduate school I asked my lead professor what my percentages of finding a job with their degree would be. He said, “If you find a job its 100%. If you don’t, its 0%! Those are the hard cold facts for you. To be truthful, in this case group percentages do not apply?” And he was right.
When we apply this logic to a network that has a sub-network processing as a pyramid we cannot apply the overall network percentage to the person effected, but must apply the percentages within the sub-network. The sub-networks that fail may be only 5% of the total volume so it is easy for a Consultant to justify this. But for the Consultant in a network who is holding 10 Results Approach Kits that they cannot move, they do not feel this impact as a portion of the total network, or 5%. They feel 100% of the impact! And if they were impacted because the sub-network in which they reside is processing as a pyramid scheme, they are impacted 100% by a pyramid scheme. Failure to deal with this ethical issue taints the network involved, those that put such a system into motion, those that allow it to continue, those who profit from it and the company as well.
Transfer of Ethical Accountability:
What is even more irritating with regard to the above is when we have presented these facts to some Consultants they do not refute the substance of the facts or the truth of their impact. Rather, they defend their actions by saying, “They are Independent Consultant’s and can do their business however they choose.” It is interesting that this response does not refute or deny the substance and thus the truth of the ethical lapse; it only transfers the stated guilt down the food chain to another person. And it may be true that the other Consultant can run their business as they choose, but by placing this scenario into effect, or at the minimum allowing it, one is then responsible for the dominoes that fall as a result, especially when, as an up-line Consultant, you are benefiting financially from it.
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