Can a Pyramid Schemes Have Product?

Question

Accepted Answer

Updated: May 2026 Oleksandr Honcharov, CEO at FlawlessMLM Yes, pyramid schemes often have products, but the products usually exist only as a cover for the recruitment-based income structure. Can a pyramid schemes have product is exactly the question regulators ask, and the answer determines whether the scheme is legal or not. A product alone doesn't make the scheme legitimate. How products function in pyramid schemes Products as a legal shield — schemes use products to claim they are "legitimate" MLM companies under the law. Internal consumption only — most product purchases come from distributors qualifying for commissions, not from outside customers. Overpriced or low-quality — items are typically marked up 3-5x compared to similar non-MLM products. No genuine retail demand — products would not sell at the offered price outside the distributor network. Wellness, beauty, and supplements common — categories that allow for vague performance claims and high margins. The FTC test — at least 70% of sales must go to outside retail customers for the structure to be considered a legitimate MLM. Definition: Pyramid schemes can and often do have products, but the products usually function as a legal cover for the recruitment-based structure. Regulators look past the existence of a product to whether sales actually go to outside customers or only to distributors qualifying for commissions. Just because something has a product doesn't make it legitimate. The FTC's 70% rule is the practical test: if 70% or more of sales aren't to real outside customers, the scheme is functioning as a pyramid, regardless of what's in the catalog.

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