There are so many options for people when it comes to starting a homebased business. And one of the more popular options people look at is multi level marketing.
Now true multi level marketing (MLM) is a legit business model used by direct sales companies. But there are plenty of so-called business opportunies that call themselves an MLM opportunity when in reality they are a multi level marketing scam.
And many times many of these so-called opportunties are even flat out pyrmaid schemes.
So how can you protect yourself from these sort of scams? You do what you’re doing right now, you gain the knowlege so you can protect yourself.
Understanding Multilevel Marketing (MLM)
Now as I just mentioned multilevel marketing is a legitimate business strategy that’s used by direct selling companies.
Now unlike traditional sales, MLM uses an independent sales force. And typically these people are called distributors or reps. And these distributors sell the products, but they also recruit new participants into their business or what’s called their downline.
Here’s How It Works:
More often and not you’re going to be approached by someone you know who’s involved with a multilevel marketing company.
And after hearing the pitch regarding the business opportunity if you’re interested that person will sign you up as an independent distributor within their business (downline).
Now, you’re not being employed by the multilevel marketing company or the person that has recruited you into the business. You’re an independent direct salesperson.
Now as an independent salesperson your task is to sell the company’s products or services to other people usually by approaching your friends and family first. And you’ll receive a commission from every sale that you make of those products or services.
But working in parallel with that you’re encouraged to bring in other recruits into the program as independent distributors.
Now, with a legitimate multilevel marketing company the focus is not on recruiting people as your primary method for making money.
The recruiting aspect provides you another avenue for making money. A financial incentive if you will.
And the incentive is earning a percentage of the sales of the people that you’ve recruited into your business. And depending on the type of compensation plan the MLM company has, you can earn not only a percentage of the sales of your recruits but of their recruits and so on.
And as it’s typical with most multilevel marketing companies as you build your business (downline) and you meet certain qualifications within the compensation plan you can rise in the ranks within a compensation plan and receive the bonuses that come with those individual ranks.
Here’s a screenshot of Avon’s compensation plan a legitimate multilevel marketing company.
And you can see the different ranks within their compensation plan and the bonuses that people can earn by reaching these different ranks within their compensation plan.
Now before you get too excited and sign on the dotted line and get involved with an MLM company here’s the things you want to look for to make sure you’re getting involved with a legitimate MLM company.
Here’s 9 signs of a multilevel marketing scam (scheme)
1) No Or Low Quality Products Or Services
Along with the other red flags I’m going to cover. The biggest red flag that you’re getting involved with an MLM scam is the lack of a real product or service.
Opportunities that are focused on recruiting people over the sales of a product or service chances are it’s a pyramid scheme.
If the company itself is not focused on acquiring more customers to buy its products or services. But is more focused on “building a team” or building up their “membership” of sales reps is a big red flag.
The whole foundation of a good MLM business model is about getting the products and services out to consumers.
While recruiting people and building a team is part of multilevel marketing. The income is based on the goods sold by you and your team not in the recruiting of people all by itself.
2) Ridiculous And Unfound Product Claims
More often than not you’ll find these ridiculous and unfounded product claims mostly associated with health and wellness companies.
Here you can find the distributors and the company making all these ridiculous product claims of how their products work miracles. This type of over-the-top hype is a red flag in any industry, direct sales included.
Now the reason why companies can say these crazy claims. Is because you’ll find that all the products that are in health and wellness market have not been evaluated by the FDA.
In fact, unlike drugs that has to be proven for their effectiveness and safety before hitting the market. There is no provision or law for the FDA to approve dietary supplements for safety and effectiveness to a consumer.
In other words, these companies don’t have to prove that their products work or that they’re even safer you to take.
A legitimate business is founded on the quality of its products. So, keep that in mind when you’re reviewing a MLM business opportunity.
If the company itself or the representative of that company has some really wacky or bizarre claims about its products that seem too good to be true, there’s another red flag.
You certainly don’t want to be associated with the company that is making false claims about their products or services. Or worse yet have your name associated to a company that ends up being the focus of some sort of litigation.
3) High Pressure Sales Tactics To Get You Involved
Have you heard this term before “Ground-Floor Opportunity”?
Someone trying to use high pressure sales tactics by luring you into the company because of the ground-floor opportunity is a red flag.
A legitimate direct sales company that has a good opportunity, is a good opportunity no matter when you decide to get involved with the company.
In fact, you’re far safer getting involved with a company that has been around more than 5 years then you are with a startup.
The reason why 5 years is kind of your magic number is because most new multilevel marketing companies don’t make it past 5 years.
Another red flag during these high-pressure sales tactics to get you involved is if they don’t give you the time to study the company or allow you to step back for a day or two to think about it. Is nobody you want to be involved with.
If it’s a legitimate business opportunity the person that’s presenting you the business opportunity is going to allow you to study the company so you can check it out, talk to friends and family about the business and allow you the time to make an informed decision.
4) You’re Pressured To Buy And Stock Inventory
Now as with any business opportunity including an MLM business you’re going to have some sort of startup costs. Think about it? You can’t buy a Wendy’s franchise without investing money.
And the same is true when you get involved in direct sales, but your startup costs are going to be a lot less.
What you want to watch out for are these fast-track programs that tell you if you invest more money, you can earn more commissions. This is known as pay to play.
So, they’re telling you can spend X amount of money and get involved, but you’re only going to be allowed to earn this much of a commission because you at this level.
But if you spend more money or even more money that takes you to these new levels. You can earn more commissions. Run away from that so-called opportunity.
The other thing you want to watch out for is being pressured into buying more inventory. This is known as inventory loading.
Now because of this tactic the law now requires multilevel marketing companies to buy back inventory.
But just because that law is in place doesn’t mean you want to be saddling yourself with a ton a debt before you start with the business before you truly understand how the business works or even if you’re going to be successful.
Now you are getting involved in a direct selling business model so yes, you’re going to have to have some products on hand if you’re doing face-to-face sales.
But you certainly don’t want to fill your garage full to the rafters unless you’re 100% sure that you can sell the the products.
And if you’re selling online, you don’t need any inventory. The company takes care of delivering products.
5) Horrible Company Communication
Now I know for some people wanting to get involved with their own home-based business can stop them from asking the hard questions.
But you have to ask the hard questions. So, if you’re not getting the answers or you’re being chastised for even asking the questions or being told you don’t have a positive attitude or you’re not 100% behind the company. Consider those red flags.
If the person that’s trying to recruit you into the business is being defensive because you’re asking the hard questions or when you try to contact the company and they are evasive and they don’t want to answer your questions.
Yes, that’s definitely a red flag and that’s not a company you want to be involved with.
A legitimate company is to going provide you with all the information that you need to make an informed decision.
They should be providing you details about their compensation plan as well as financial information about the average earnings of their distributors. That’s known as an income disclosure statement. And the steps needed to do to build your business.
This information allows you to study everything before you make a decision.
And if the sales rep or the “distributor” or company is not providing you this information and is avoiding these hard questions or is hesitant to answer your questions, that’s nobody you want to be associated with.
6) Pressured To Buy Expensive Ongoing Training
A legitimate direct sales company is going provide you with free training. Typically, that’s done online through a special online portal that the company will provide you.
The person that recruited you in the business should be providing you with ongoing support and training as well. Now while companies do have additional trainings that you can buy.
You should never be pressured to do so. You should never be told that if you don’t buy this certain product for training, you’re going to hinder the growth of your business.
Now many MLM companies have annual conventions. And yes, these conventions can be a lot of fun, informative and you can meet other distributors. But these conventions can be very expensive.
So, if you’re representative or the company is routinely pressuring you to pay for additional training and attending these conventions yes, consider that a big red flag.
7) Poor Better Business Bureau Rating
Now the reason why I’m mentioning this is even though the Better Business Bureau will typically grade a home-based business as low simply because you’re working from home is not based on any real investigation.
What you can do is use the Better Business Bureau to search for complaints about the company that you’re considering getting involved with.
Now, you will find complaints. And it’s not just MLM companies you’re going to find complaints about. Every company has complaints. No company can please everybody, that’s just the way it is.
But what you’re looking for is the company responding to those complaints and fixing the problems. If they are, that’s a really good sign because it means their taking care of their customers and their sales reps.
But if you find that a company is not responding to any complaints and not fixing any problems. Guess what? That’s another red flag.
Another resource that you can go to, to check out companies is TrustPilot.
8) Deceptive Advertising
Some multilevel marketing distributors are going to advertise their business as a “job”. Or the use other descriptions to draw people into their opportunity.
First and foremost, multilevel marketing is not a job. It’s a business. Any representative of an MLM company that is promoting the opportunity as employment, is using deception and that’s certainly nobody you want to be involved with.
Because if they are going lie to you about what you’re going to get involved with. What else are they going lie about?
Another thing to watch out for our reps that seem quite cryptic when talking about their business opportunity. You know, they don’t tell you the company’s name or tell you what the opportunity is about.
Instead, they say things like “how would you like to come to a meeting and learn how you can leverage your time for money”.
In the early days a multilevel marketing that was the way Amway used to lure people into meetings. And I’m speaking from experience.
In my youth I just left a company that I didn’t want to work for anymore. And one of the other sales guys approached me and said something similar. And when I got there the living room was set up with an easel and I was in an Amway meeting.
Before I even sat down, I was turning around and heading for the door. I knew it was coming and I wanted no part of it.
9) Income Guarantees
If a rep from an MLM company is making income guarantees. That’s a company and a rep you want to stay away from. There is no guarantee of making money with multilevel marketing. Or any other business opportunity for that matter.
Also, if the rep suggests that you can make a lot of money by doing very little work. That’s another HUGE red flag.
Now it’s human nature to get excited when someone says you can make a lot of money without doing much work.
We all would love to do that. But the reality is when it comes to building your own business you going to have to bust your ass to make money. And anyone telling you otherwise is lying to you.
Another Thing To Consider
Now while the 9 signs or red flags that I just mentioned should never be ignored.
The one thing that you should never ever ignore because 9 times out of 10 it’s right.
And what am I talking about?
I’m talking about that gut feeling you get.
If you’re looking at a business opportunity and throughout researching this opportunity you just have a weird feeling. That’s your gut telling you something.
So don’t ignore it. Don’t ignore your intuition. If it doesn’t feel right whether it’s a scam or not. It’s definitely not for you because your body is telling you so.
Don’t overlook this feeling. Don’t feel like you’re doing the wrong thing and missing out on an opportunity. You’re not.
By listening to your gut, you’re doing the right thing.
Here’s Some Resources For You
If you’re looking at a multilevel marketing business opportunity beyond researching the company and looking at the data in regards to the average earnings of their current distributors.
I want you to take a look at the actual success rate of everyone that gets involved in multilevel marketing.
The average success rate of people that make any significant income. When I say significant income, I’m talking about a full-time income.
The success rate is below 1%.
99% of people that get involved with multilevel marketing don’t make any significant income and many of those people actually lose money.
Now I’m not just pulling these numbers out of a hat. There have been many studies that have shown that multilevel marketing is actually a flawed business model to follow as an independent distributor.
The business model is fantastic for the company itself because it’s always going to be making money. But as for the distributors is one of the worst business models that you can follow.
And that’s why you find that most people that are trying to recruit you into a multilevel marketing business opportunity. Mostly focus on how your life is going to change when you’re making all this money.
They talk about not having a boss, they talk about the freedom you’re going to experience and they talk about how you can help out your friends and family.
But what they don’t talk about is what you have to do in order to make that money. And that’s where people fail.
Because with multilevel marketing there’s only two ways you’re going to be able to make money.
The first way is by retailing the products. And yes, you can make money just retailing products. And of course, how much you make is going to be depended on the compensation plan and your efforts in regards to selling those products.
And the other way is by recruiting people into your business. And no matter how you look at it both ways you have to become a salesperson.
So, if you don’t have excellent sales and networking marketing skills or are willing to do what it takes to develop those skills, you’re going have a really tough time making whatever MLM company you decide associate yourself with a success.
And I’m not saying these things to discourage you about getting involved with multilevel marketing. If you feel you have what it takes to succeed in MLM, then go for it. And I wish you nothing but success.
I’m saying these things because I want you to know the reality of getting involved with multilevel marketing.
So, here’s some resources that I want you to check out and include the information you find at these resources as part of your decision-making.
Other Options
There are many other options for building a successful home-based business. One of those options is Affiliate Marketing.
With affiliate marketing you don’t have to become a salesperson nor do you ever have to recruit anybody to build your business.
In fact, affiliate marketing is how I’ve been making full-time living online since 2005.
Now I’m not sure if you’ve heard of affiliate marketing. And whether you have or you haven’t it may be something that you may want to look into as an alternative to multilevel marketing.
Now the best resource that I can give you when it comes to learning how to build a thriving affiliate marketing business and having all the tools, resources, and personal one-on-one support is wealthy affiliate.
I’ve been involved with wealthy affiliate since 2012 and since then I’ve had the privilege of personally helping people build their own thriving affiliate marketing businesses.
If you like to learn more about wealthy affiliate, I did a complete review of wealthy affiliate and what they have to available and I also cover the 4 simple steps that you would follow to build your business.
I believe in you!
Leo
Hey it’s Leo. I’m the founder of Netwise Profits, and I’ve been making a full-time online income as an affiliate marketer since 2005. And as of 2012, I’ve been personally helping people turn their hobbies, passions, and interests into online incomes through affiliate marketing. And I can help you too.