In a pyramid selling scheme, the mass of salespeople at the bottom line up a handful of customers to buy the product or service. Many of the salespeople will bring in only a small volume of business, but if you have enough of them the business will mushroom. Typical products: cosmetics (Mary Kay), household goods (Amway), vitamins (Shaklee).
The folks who make money aren't the ones who move the goods. The big money goes to the people who recruit the salespeople and to the people who recruit the people who recruit the salespeople. If you convince a customer to become a sales rep, you get not just a commission on his phone bill but also an override on any customers he recruits, and so on down the pyramid.
At Dallas, Tex.-based Excel, the salesman at the top, former high school football coach Paul Orberson, earns $1 million a month. The company trumpets his success in order to haul in new recruits.
Representatives are encouraged to sign up their relatives and friends as customers (shades of MCI's Friends & Family plan). That keeps turnover low, at least among the customers. "My mom isn't going to quit Excel for a check from AT&T. She is loyal to me," says Excel representative Clinton O'Rear, a part-time marketing consultant in Dallas. Still, there is plenty of turnover among the sales reps 80% don't even last a year.
Most recruits pay $195 to join, often mesmerized by visions of emulating Orberson. Excel is the country's fifth-largest long distance company, with 4.1 million customers. But Excel also boasts 1 million sales reps. That means the average Excel rep has only four customers, and one of them is himself. No wonder the turnover is so high.
The average Excel monthly bill is $28, and the commission at the bottom is 2%. That means the average salesman at the bottom is hauling in all of $20 a year in commissions. The few who climb the pyramid do better, collecting besides commissions bonuses when reps in their pyramid sign up new customers.
In the manner of a chain-letter scheme, the pyramid relies on a stream of new recruits for its prosperity. The company netted a fat $144 million on revenue of $1.4 billion last year. Minus the $195 recruiting fees, though, Excel would have been in the red.