Have you ever been tempted by an advertisement online or offer to make money online working from home? Multi-level marketing programs are promoted through internet advertising, company websites, social media, presentations, group meetings, conference calls and brochures.
What is a Multi-Level Marketing or MLM?
In multi-level or network marketing program, individuals sell products or services to the public – often by word of mouth and direct sales. Typically, distributors earn commissions not only from their own sales but also from sales made by the people they recruit or their downlines.
Not all MLM programs are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruited and your sales to them, it’s a pyramid scheme.
In a pyramid scheme, money from new participants is used to pay recruiting commissions to earlier participants just like how, in classic Ponzi schemes, money from new investors is used to pay fake profits to earlier investors.
What to consider before buying into an MLM plan?
1. Consider the products.
Many companies that market their products through distributors sell quality items at competitive prices. But some offer goods that are overpriced, have questionable merits, or are downright unsafe to use.
Find out what you will be selling. Are similar products on the market, priced competitively or safe? Almost any product or service could be sold through MLM, including health, beauty, and fitness products that aren’t available on store shelves.
If you decide to buy into the program and promote the products, you must be sure your marketing materials are truthful and that there’s solid evidence to back up the claims you make about the products. Before you repeat any claims the company has made, verify that there’s competent and reliable research to back them up.
2. Learn more about the company.
Find and study 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 may also 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.
3. Evaluate the plan.
Don’t pay or sign a contract in an opportunity meeting. Take the 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 you don’t understand something, ask for more information until it is absolutely clear to you. Your sponsor and other distributors should be willing to answer your questions. Remember that your sponsor ( and others above your sponsor’s level ) will make money if you join the program. So take your time and resist pressure to join.
4. Ask questions.
Ask your sponsor and other distributors tough questions, and dig for details, check out a potential business deal that will require your money and your time. Their responses can help you detect false claims about the amount of money you make and whether the business is a pyramid scheme.
Signs of a Pyramid Scheme
No Genuine Product or Service – MLM programs involve selling a genuine product or service to people who are not in the program. Be vigilant if there is no underlying product or service being sold to others or if the product being sold is highly priced.
Promises of High Returns in a Short Period of Time – Be wary of ” get rich quick ” claims. High returns and fast cash in an MLM program may suggest that commissions are being paid out of money from new recruits rather than revenue generated by product sales.
Easy Money or Passive Income – Be wary if you are offered compensation in exchange for little work such as making payments, recruiting others, and placing an advertisement.
No Demonstrated Revenue from Retail Sales – Ask to see documents, such as financial statements audited by a certified public accountant, showing that the MLM company generates revenue from selling its products or services to people outside the program.
Buy-in Required – The goal of an MLM program is to sell products. Be careful if you are required to pay a buy-in to participate in the program, even if the buy-in is a nominal one-time or recurring fee.
Complex Commission Structure – Be concerned unless commissions are based on products or services that you or your recruits sell to people outside the program. If you do not understand how you will be paid, be cautious.
Emphasis on Recruiting – If a program primarily focuses on recruiting others to join the program for a fee, it is likely a pyramid scheme. Be skeptical, if you will receive more compensation for recruiting others than for product sales.
My Final Thoughts on MLM
It is important to get a complete picture of how the MLM plan works, not just how much money distributors make, but also how much time and money they spend on the plan, how long it takes before they’re earning money, and how big a downline is needed to make money.
One sign of a pyramid scheme is if distributors sell more products to other distributors than to the public or if they make more money from recruiting than they do from selling. Pyramid schemes cannot be sustained and always collapse eventually.
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