27. October 2026

Network marketing or pyramid scheme? Three questions to check it yourself

Is network marketing a pyramid scheme? What the law says, three questions to check any business model and my own five objections from back then. Honest and verifiable.

“That’s a pyramid scheme.” I hear this sentence a lot. And I like it. Behind it is a fair question. I asked it myself, long before I started. In this article I show you what the law says, three questions you can use to check any business model and what was left of my own objections.

I never wanted to do network marketing

I spent more than two decades in the food industry. I helped shape recipes, assessed ingredients and questioned claims. Checking things was my job. And that is exactly why I had five really good reasons against network marketing.

The first and strongest was the word pyramid scheme. If your job is checking labels and promises, that word ends the conversation. So I did what I always do. I read. I calculated. I asked questions.

What the law really says

In Germany, where I live, the line is clearly drawn. Two parts of the Act against Unfair Competition (UWG) matter most.

The first is in the annex to section 3(3) UWG, number 14. It bans any system that gives the impression you can earn money only or mainly by bringing in new participants. In other words: models where the money comes mainly from recruiting.

The second is section 16(2) UWG. It makes so-called progressive customer recruitment a criminal offence. This means persuading consumers to buy by promising them special benefits if they in turn get others to make the same kind of deal. The penalty is up to two years in prison or a fine.

Both rules aim at the same core. A model that lives from recruiting is banned. A sales channel where real products go to real people is allowed. That is the difference that counts. Other countries draw the line in a similar way.

Three questions to check any business model

I asked myself these three questions before I started. You can use them for any offer that comes your way.

Question 1: Where does the money come from?

Look at the compensation plan. Are you paid for selling products or for bringing someone in? If there is a bonus just for recruiting, with no product behind it, walk away.

Question 2: Are there customers who just want the product?

A healthy model has lots of people who buy without running a business themselves. They order because the product is good for them. If these customers exist, there is real demand. Then the business carries itself without a constant flow of new partners.

Question 3: Can you leave at any time at no cost?

No stock in the garage. No minimum sales you have to buy yourself to stay in the plan. No penalty. Anyone who tries to hold you with things like that has a problem with their model.

An honest addition: the US Federal Trade Commission (FTC) stresses that there is no simple percentage test. It looks at the whole structure, including how a plan works in practice. One warning sign, for example, is buying product only to qualify for a commission or a rank. So for me: the three questions are a good start. Reading the compensation plan yourself is part of it.

My five reasons and what was left of them

1. “It’s a pyramid scheme.”

What was left: the law draws a clear line. The money is earned on products that real customers buy. Not on recruiting.

2. “I’ll annoy my friends.”

What was left: only if I chase them. Today I talk about what does me good. If someone asks, they get an answer. If they don’t, they simply stay my friend. I call this sowing instead of hunting.

3. “It’s just selling.”

What was left: I never recommend anything to anyone who doesn’t need it. I advise. And sometimes the best advice is: you don’t need this.

4. “It’s not a real business.”

What was left: no stock. No loan. No shop. For me it is the simplest form of self-employment I know. It is a real business, just with a very low entry barrier.

5. “I don’t have time for this.”

What was left: at the start I had a few fixed hours a week. No more. What mattered was really using them every week. I write more about this in the article “Free, not rich”.

Checking things was my job for more than two decades

Why I write about this so openly

Network marketing is not for everyone. I tell everyone who talks to me. But it is a real chance to get out of the rat race. And it is one of the simplest ways to become self-employed.

What you make of it depends on you. The range is huge. That is exactly why I think it matters that you look at a model calmly before you decide. With healthy doubt. Without rose-tinted glasses. Just like I did back then.