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Is Utility Warehouse a Pyramid Scheme?

Post Series: Utility Warehouse

I hear this question on a regular basis and feel that it is time a definitive answer was given. Let’s put this misconception to rest.

Already, I’m sure you can tell that I will be proving how Utility Warehouse is not a Pyramid Scheme. Below, I will be arguing why it isn’t a Pyramid Scheme and showcasing the differences. Let’s start with the definition:

What is a Pyramid Scheme?

Here is my own definition of a Pyramid Scheme:

A Pyramid Scheme is an illegal business model, where the only way to generate a feasible income requires participants to recruit people, rather than sell a product or service.

What this means is that selling the product or service is secondary to recruiting other distributors. In other words, selling the product or service alone won’t provide you with enough of an income. You are relying on others below you (often called a ‘downline’) to make sales for you and create your passive income.

a diagram showing the unsustainable pyramid scheme busniess model

Click image for source

An issue with this type of business model is down to the human population. This is an entire discussion unto itself, so I’ll let this diagram explain.

You start by recruiting six people. Each of those six will recruit six people and so on. By level 13, you’re exceeding the world’s population.

The reason for creating my own definition for a Pyramid Scheme is that I noticed a lot of sources on the Internet mixed up their definitions. There seems to be confusion between that and a Ponzi Scheme. However, they are distinctively different.

What is a Ponzi Scheme?

A Pyramid Scheme relies on a recruiter creating a sales team ‘downline’. In contrast, a Ponzi Scheme can be carried out by a single person. The name comes from Charles Ponzi, who ran a scheme in the 1920s. Here is the definition from the Oxford Dictionary Online:

A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

To explain, I’ll use Charles Ponzi himself as an example.

People would invest their money into Ponzi’s business. The business claimed to involve buying and selling postal reply coupons. Investors would expect a profit to be returned to them within 45 days. The money that they did receive those 45 days later would actually be generated through the money invested by those afterwards.

What this means for a Ponzi Scheme is that they are relying on a constant intake of new investors. The money brought in by these new investors is used to pay back previous investors. This simply cannot last forever.

I’ve never heard people describing Utility Warehouse as a Ponzi Scheme before. Therefore, I will be putting most of my focus on the question people keep asking: Is Utility Warehouse a Pyramid Scheme?

Why Utility Warehouse Isn’t a Pyramid Scheme

Their Business Model Doesn’t Meet The Definition of a Pyramid Scheme

Let’s stick with the definition of a Pyramid Scheme. It can be proven that your income from Utility Warehouse doesn’t rely on just signing up new distributors. For example, somebody within my network earned over £12,000 in January alone just from signing up new customers.

Therefore, you can generate a strong, passive income simply from signing up new customers. As a result, the business model is sustainable, unlike an actual Pyramid Scheme. You have multiple means of generating an income for yourself. It’s not just about recruiting new distributors.

If you look at the diagram above, a true Pyramid Scheme would fail quickly. You will run out of people to recruit by level 13. With Utility Warehouse, the business model will only stop to grow once every UK resident is signed up for their utility services. However, Utility Warehouse only provides a service to around 2% of the UK’s population.

They Are Traded on The London Stock Exchange

Now let’s look at the company itself.

Utility Warehouse is owned and run by a larger organisation. They are known on the London Stock Exchange (LSE) as Telecom Plus PLC. Just to break it down quickly, PLC stands for ‘Public Limited Company’. Simply put, this means the company’s shares are sold and traded by the public.

Telecom Plus is listed as an FTSE 250 company. I think it’s safe to say that if Utility Warehouse were an illegal pyramid scheme, it wouldn’t be possible for Telecom Plus to be listed on the LSE. In fact, they have been listed since June 2000.

They Don’t Meet The Definition of a Ponzi Scheme

As mentioned before, the definition of a Ponzi Scheme relies upon a constant stream of new investors. Becoming a distributor for Utility Warehouse does require a joining fee. However, this fee is used to cover the cost of your initial training, free website and more.

Instead, as a distributor, you are paid via the bills of Utility Warehouse customers that you signed up. These can be customers that you signed up directly or customers that a distributor in your network signed up. This means your income is dependent upon your customer network.

The difference between this and Charles Ponzi’s scheme is that Ponzi guaranteed a specific return on investment. He would accrue that return through other investors. As a Utility Warehouse distributor, your income is more dependent upon your own efforts.

Their Services Are Just, Well… Good

There has been much debate around the quality of products sold by companies that have been accused of being Pyramid Schemes. One such company that comes to mind is Herbalife. A simple Google search will provide you with a plethora of bad reviews regarding the taste of their products. Even this taste test video from Business Insider produced a mixed reception at best.

A nutritionist also broke down the ingredients of Herbalife products in a scathing review. Danielle concluded that despite Herbalife being sold as a health product, you could do better. She argued that there are many cheaper products out there with more positive health benefits. This view is shared with many others.

Some people actually consider Herbalife’s products to be a front for a Pyramid Scheme. Those people consider the real aim for the company is recruiting distributors who, in turn, recruit distributors themselves.

The reason why I bring this up is not that I’m launching an attack. Far from it.

Sadly for Herbalife, they’re arguably the most well-known company in the world to have been accused of being a Pyramid Scheme. This makes them a good example to use when discussing service or product quality. Information is very easy to find for a well-known company.

In a Pyramid Scheme, the actual product or service is secondary to recruiting new distributors. However, Utility Warehouse genuinely presents a fantastic opportunity. People in the United Kingdom could potentially save money on their gas, electric, mobile phone, broadband and various other bills.

One of my biggest aims when speaking to a potential customer about signing up is to try to save them money on their bills. Gas and electricity for a person’s home is very much a necessity rather than a luxury. With this in mind, Utility Warehouse distributors aim to help people.

On top of that, Utility Warehouse offers award-winning customer service. You can see their accolades from Which? and other awarding bodies on the Utility Warehouse website. You can also take a look at the Which? website itself to see what they have to say.

Distributors Don’t Have To Continuously Pay

This will be the last time I mention Herbalife. I don’t mean to single them out, but they are a very well-known brand.

As a distributor for Herbalife, you have to keep buying stock in order to qualify for their commission structures. The same goes for some other product-based multi-level marketing companies. One such example would be Nu Skin.

You have to constantly buy stock. This is regardless of how much you’re selling. If you’re unsuccessful, you can find yourself stuck with a house full of products that you can’t shift. Some people have found themselves literally thousands of dollars (Herbalife are an American company) out of pocket.

The difference with Utility Warehouse is that you don’t have a product to continuously buy.

You are required to sign up three customers in order to become a Qualified Distributor, but you don’t have to spend any extra money to achieve this. You can find out how to sign up your first three customers by downloading my free eBook. With it, you will also discover a little hack to make the first one really easy.

Conclusion

To round this up, I’m hoping to have proven to you today that Utility Warehouse is not a Pyramid Scheme. Instead, it is a viable business opportunity for people looking to generate a passive income. This can be treated as either a side job or your main way of earning money.

I think a big part of why Utility Warehouse is labelled a Pyramid Scheme is because of other terms associated with it. The term Multi-Level Marketing is often paired with Pyramid Scheme.

I’m not a big fan of labels. If I really had to give it a name, I would say Network Marketing rather than Multi-Level Marketing. The term multi-level puts too much focus on recruiting more distributors. That isn’t what Utility Warehouse is primarily about.

Instead, you are networking with people to help them save money on their gas, electricity, broadband and more. If they would like to earn money like you, that’s great. But it is definitely not the only way for a Utility Warehouse distributor to make a decent living.

Before making the leap, think hard about whether a side job is right for you. You can get your mind thinking before making your decision by reading my article Side Hustle: Good or Bad Idea.

If you’ve read that article and believe becoming a Utility Warehouse distributor sounds like an interesting opportunity for you, please get in contact.

You can use the form below and I can help you get started. After doing that, please be sure to download my free eBook. It provides my top tips and insights in order to start your journey on the right track.

Would you like to know more?

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