Does It Sound Too Good To Be True?

Multi-Level Marketing or MLM schemes claim numerous victims in the U.S. and around the world every year. People fall prey to vague promises of making easy money, without needing special training or a large investment. Studies show that up to 99 percent of all people recruited to sell through MLM end up losing money.

What IS Multi-Level Marketing? Multi-level marketing (MLM), also known as Network Marketing, is a marketing strategy that compensates promoters of direct selling companies not only for product sales they personally generate, but also for the sales of others they introduced to the company. The products and company are usually marketed directly to consumers and potential business partners by means of relationship referrals and word of mouth marketing. Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the parent company and are awarded a commission based upon the volume of product sold through each of their independent businesses (organizations). It is sometimes difficult to distinguish legal and reputable MLMs from illegal pyramid or Ponzi schemes. MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses. Source: Wikipedia

There are many reasons why MLM does not work, not least of which is a multi-leveled commission structure. This means there will always be too many people you have to pay before you see any income.

Jon M. Taylor, PhD, author of the book The Network Marketing Game, who started the Consumer Awareness Institute, a nonprofit organization dedicated to researching and distributing information about MLMs, has assembled a comprehensive body of knowledge about MLM schemes. The Institute developed a five-step consumer guide to help consumers recognize pyramid schemes. When distinguishing between multi-level marketing, schemes and genuine business opportunities, watch out for these five red flags:

Red Flag #1: Participants are recruited in an endless chain. If someone tries to recruit you, and wants you to keep recruiting, and to have your recruits bring more people in still – beware! The recruiter may try to convince you that you can build a never-ending stream of commissions and bonuses from your recruits, your “downline” in MLM lingo. But remember: you will also owe commissions to a never-ending list of people above you, making it unlikely to be profitable.

Red Flag #2: To advance in this organization, you need to recruit a certain number of people. Sometimes this will be a combination of recruitment and sales quota.

Red Flag #3: To qualify for bonuses, promotion or commissions, you may need to purchase some of the products or services yourself.

Red Flag #4: the company pays commissions and bonuses to more than four different levels of participants.

Red Flag #5: the total commissions and payouts to people above you in the chain leave you with no income.

In doing your research, you should request written information about the firm’s compensation, bonus, and promotion regulations. If you are asked to pay for any materials about the company or its products, this is a warning sign, and yet another red flag.

Misconceptions about MLM make it even harder to see through the schemes. Here are a few of the more common fallacies, according to Dr. Taylor:

Aren’t all large organizations, including corporations and government entities organized as pyramids, with those at the top getting paid the most?

While most large organizations consist of some organizational hierarchy, with several layers, the problem with MLMs is the endless chain of participants; all bound by commission requirements which make it nearly impossible to make an actual profit.

If MLM products reall work, what is the harm in buying them?

You should seek credible information about products, particularly health-related products, from healthcare professionals, and not from salesmen. Even if the product is a legitimate one, it is the business model behind selling the products that consumers should be aware of.

What can consumers do to protect themselves from MLM scams?

Be wary of any “business opportunity” which involves recruiting multiple sellers, and generally question any “amazing business opportunity” that comes knocking on your door.

Remember: If it sounds too good to be true, it probably is ...