27 May Truth or Myth: Keller Williams Pyramid Scheme?
What’s this I hear about the “Keller Williams pyramid scheme?”
When Keller Williams was a much younger and much smaller company, we used to get asked if there was a Keller Williams pyramid scheme ALL THE TIME. While we don’t hear it much anymore, it still shows up from time to time and it’s worth addressing here to set the record straight. When people make that claim, it is generally in reference to the Keller Williams profit sharing program. I’ll bring this together at the end of the post, so please humor me for a few paragraphs.
First of all, let’s define the term pyramid scheme. I’ll leave this one to Investopedia:
As its name indicates, the pyramid scheme is structured like a pyramid. It typically starts with one person – the initial recruiter – who is on top at the apex of the pyramid. This person recruits a second who is required to “invest” a certain amount, which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest. If the recruit gets 10 more people to invest, he or she will make a profit with just a small investment.
Further, the new people become recruiters and each one is in turn required to enlist an additional 10 people, resulting in a total of 100 more people. Each of those new recruits is also obligated to pay their investment to the person who recruited him or her. Recruiters get a profit of all of the money received, minus their initial investment paid to the person who recruited them. The process continues until the base of the pyramid is no longer strong enough to support the upper structure, and there are no more recruits.
To address whether or not there is a Keller Williams pyramid scheme:
- Do you have to invest money to participate in Keller Williams profit sharing? No.
- Is anyone obligated to invest money to participate in Keller Williams profit sharing? No.
- Do you have to spend any time recruiting at Keller Williams? No.
Based on this definition, is there a Keller Williams pyramid scheme? No.
While we’re at it, let’s let Investopedia define multilevel marketing (or MLM) too:
Legal multilevel marketing (MLM) involves being recruited in order to sell a product or service that actually has some inherent value. As a recruit, you can make a profit from the sales of the product or service, so you don’t necessarily have to recruit more salespeople below you. While you may be encouraged to recruit other salespeople whose sales would give you more profit, you can stick to just selling the product directly to the consumer if you choose.
A pyramid scheme MLM, however, will most likely sell a product with no independent value. The product could take the form of reports of some kind, for example, or mailing lists. In this kind of pyramid scheme, you would be required to recruit new members into the MLM in order to make a profit and keep the MLM alive. Joining the MLM is the only reason anyone would buy the products sold by this pyramid scheme.
To address whether or not Keller Williams is a multilevel marketing organization:
- Are people recruited to Keller Williams in order to recruit more salespeople? No, they are recruited to help people buy and sell houses. (To be fair, there is a financial incentive for Keller Williams agents to help Keller Williams fill open positions, just like any Fortune 500 company, but it is not the focus of the company. More on that later.)
- Are you earning money from the sales of anyone who joins Keller Williams because of you? No, but we do share our profits at Keller Williams.
Based on that information, is Keller Williams a multilevel marketing company? No.
And for good measure, let’s have Wikipedia define a Ponzi scheme.
A Ponzi scheme (also a Ponzi game) is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.
Ponzi schemes occasionally begin as legitimate businesses, until the business fails to achieve the returns expected. The business becomes a Ponzi scheme if it then continues under fraudulent terms. Whatever the initial situation, the perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.
To address whether or not Keller Williams is a Ponzi scheme:
- Is there any investment required? No.
Because there is no investment capital involved, is Keller Williams a Ponzi scheme? Nope.
So where did all of this come from and why are people still talking about it?
Some of the confusion comes from a misunderstanding. To be fair, it’s easy to see how this could happen. The terms Keller Williams pyramid scheme, multilevel marketing and Ponzi scheme are all inaccurate.
Keller Williams is a full-service real estate company that focuses on helping people buy and sell real estate. This has always been the focus of the company. There has never been a Keller Williams pyramid scheme.
The confusion comes from the structure of the Keller Williams profit share system. There is a tiered reward system with Keller Williams profit share, which at first glance is easy to confuse with pyramid schemes and MLM companies.
How it works
Keller Williams shares about half of it’s profits at each office with its agent population. For an office that makes $500,000 in profit in a year, that means about $250,000 is given back to the agents as a “thank you” for helping to build the company. After all, what is a real estate company without its agents?
The way the Keller Williams profit share is distributed is through a tiered reward system. Just like in every Fortune 500 company, Keller Williams people are financially rewarded for helping the company fill open positions. The difference at Keller Williams is that the reward changes depending on how productive that person is and how long that person stays with the company. If the agent is highly productive and stays with the company for many years, the agent who referred her will get a large financial reward. If the agent is not productive and leaves after a year, the agent who referred her will get a small financial reward (or no financial reward).
Profit sharing is a unique concept in the real estate business. The bigger philosophy behind the entire system is that Keller Williams creates a “win-win” relationship between the agents and the company. It is IMPOSSIBLE for the owners of the company to make any money without the agents making multiples of what the owners make. For real.
That dynamic puts everyone on the same page and aligns everyone’s interests. The only way to increase the amount of profit share is to increase the amount of profit. When there’s more profit, both the agents and the owners are happy.
Sometimes, you will encounter people who ONLY focus on profit share when they talk about Keller Williams. That is NOT how we teach our agents to behave and Keller Williams profit share is NOT a reason to decide to join us or not. There are plenty of other factors that are more important, such as the training, coaching, support and leadership at your local office. If you are interested in profit sharing, that’s great, but it should be something extra, not your primary motivation.
For some statistics (as of summer 2016) there are about 150,000 Keller Williams agents in the world and about a third of them participate in our profit sharing system. That means 100,000 of the 150,000 KW agents choose not to participate. They are joining KW and staying for some OTHER reason than the imaginary Keller Williams pyramid scheme, so what do you think it is?
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