The Multi Level Marketing and Pyramid Schemes
Are You Considering a Multi level Marketing Opportunity (MLM)?
Be cautious. It may well be a legitimate multilevel marketing business. Or it may be a pyramid scheme – an illegal scam designed to steal your money.
The Multi level marketing and pyramid scheme concept is based on recruiting people to become distributors of a product or service. Like MLM, the pyramid scheme offers the opportunity to make money by signing up more recruits and by accomplishing certain levels of achievement.
How Can You Tell The Difference ?
The primary distinction difference between the MLM and a pyramid scheme is in the way the business operates. The entire purpose of a pyramid scheme (scam) is to get your money and then use you to recruit more distributors.
Let me be very clear, legitimate MLM’s exist. Here are some tell-tale signs you might be involved in a scam.
Basic Checklist for Recognizing a Pyramid Scheme
- If the company doesn’t seem to have any interest in consumer demand for its products, don’t sign up. If you’re encouraged to pressure friends or family into “joining”, it’s a waste of time, and likely illegal.
- Is there more emphasis on recruitment than on selling the product or service? Remember, the difference between multilevel marketing and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, run.
- Are you required to “invest” a large amount of money up front to become a distributor? This investment request may be disguised as an inventory charge. Legitimate MLM businesses do not require start up costs. When participating in a legitimate MLM, you simply promote product and earn your commission through your sales. The company ships the merchandise for you and everything. You promote, sell, and earn – that is legitimate.
- If you do choose to pre-pay for inventory, will the company buy back unsold inventory? Legitimate MLM companies will offer and stick to inventory buy-backs for at least 80% of what you paid. The benefit to prepayng for inventory is that you can make an even higher commission and retain your customer base. If the MLM is legitimate, they likely do not care how you move the product. Just remember that if they are shipping the product for you, they keep the customer. If the customer decides to order again, they will likely just buy direct from your supplier.
Multi-level Marketing (MLM) or network marketing, is individuals selling products to the public – often by word of mouth and direct sales. The main idea behind the MLM strategy is to promote maximum number of distributors for the product and exponentially increase the sales force.
The promoters get commission on the sale of the product as well as compensation for sales their recruits make thus, the compensation plan in multi-level marketing is structured such that commission is paid to individuals at multiple levels when a single sale is made and commission depends on the total volume of sales generated.
Pyramid Schemes are, however, fraudulent schemes, disguised as an MLM strategy. The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.
Learn more about the company, by finding and studying the company’s track record. Do an internet search with the name of the company and words like review, scam, or complaint. Look through several pages of search results. You also may want to look for articles about the company in newspapers, magazines, or online. Find out:
how long the company has been in business
whether it has a positive reputation for customer satisfaction
what the buzz is about the company and its product on blogs and websites
whether the company has been sued for deceptive business practices
Check with your state Attorney General for complaints about any company you’re considering, although a lack of complaints doesn’t guarantee that a company is legitimate.
Don’t pay or sign a contract in an “opportunity meeting.” Take your time to think over your decision. Your investment requires real money, so don’t rush into it without doing some research first.
Ask your sponsor for the terms and conditions of the plan, including:
the compensation structure
your potential expenses
support for claims about how much money you can make
the name and contact information of someone at the company who can answer your questions
Get this information in writing. Avoid any plan where the reward for recruiting new distributors is more than it is for selling products to the public. That’s a time-tested and traditional tip-off to a pyramid scheme.
Keep in mind that when you recruit new distributors, you are responsible for the claims you make about how much money they can earn. Be honest, and be realistic. If your promises fall through, you could be held liable, even if you are simply repeating claims you read in a company brochure or heard from another distributor. If you don’t understand something, ask for more information until it is absolutely clear to you.