What Is Pyramid Selling?

Question

Accepted Answer

Updated: May 2026 Oleksandr Honcharov, CEO at FlawlessMLM Pyramid selling is the practice of recruiting people into a sales structure where most income comes from the recruitment of new members rather than from real product sales to outside customers. It is illegal in the United States, United Kingdom, Canada, Australia, and most other developed economies. What is pyramid selling? It is a banned business practice often disguised as multi-level marketing. Features of pyramid selling Recruitment-driven income — sellers earn more from signing up new sellers than from selling products to consumers. Mandatory entry fees — to join, members must purchase a starter pack or pay a registration fee. Inventory loading — members are required to purchase large amounts of product to qualify for commissions. Lack of real product market — products have little or no demand outside the network of members. Exponential expansion requirement — the model depends on continuous recruitment that cannot be sustained. Legal status — explicitly banned in the UK under the Trading Schemes Act, in Australia under the Competition and Consumer Act, and in the US under FTC regulations. Definition: Pyramid selling is a banned business practice where most income comes from recruiting new members rather than from real sales to outside customers. It is recognized in law as a form of consumer fraud and is illegal in the U.S., UK, Australia, Canada, and most other developed economies. Pyramid selling and legitimate direct selling sit on opposite sides of one line: where the money comes from. Real sales to real customers? Legal. Recruitment fees disguised as product sales? Illegal.

Related questions