At one point or another, most of us have sat through a multi-level marketing business opportunity presentation — whether we knew it or not. These types of businesses, otherwise referred to as network marketing — or, with a negative connotation, pyramid schemes — have been around for years, but have been on the rise recently.
Many of them promise financial freedom and the ability to work from home, a concept that’s becoming more desirable in a weak job market and sluggish economy.
Unfortunately, many of them are also scams, and even if they’re legitimate, don’t follow through on their promises to make you financially independent.
Here’s a brief overview of what multi-level marketing is all about and how to tell the difference between legitimate businesses and frauds.
What is a Multi-Level Marketing Company?
Multi-level marking (MLM) is a system in which members are compensated for the sale of particular products, as well as the sales of members personally recruited into the company. This is the opposite of single-level marketing, in which the seller receives income only from the direct sale of products. In theory, the more people you recruit into your downline, the more commissions and other compensations you’ll receive.
MLM companies have received plenty of criticism and suspicion over the years because of the shady “get-rich-quick” sound of their structure, as well as their often obnoxious or misleading recruitment techniques. While some companies are more like pyramid schemes (where members at the top benefit unduly from everyone else at the bottom) that burn people who get involved with them, there are plenty of legitimate and potentially profitable MLM companies.
How to Discern Legitimate MLMs from Scams
Research the company’s history.
The longer a MLM company has been operating, the better the chances it has a good reputation and is a legitimate business. Check out the company with the Better Business Bureau and the U.S. Federal Trade Commission. If you’re being recruited by an acquaintance or friend, don’t be hesitant to ask detailed questions about what they’ve put into the company and also how they’ve been compensated.
Watch for vagueness or manipulation in business opportunity presentations.
Companies that are legitimate shouldn’t be hesitant to tell you exactly what product(s) they sell, what’s required to get started, and how the compensation plan works. Many questionable MLM companies tend to use high-pressure sales tactics or manipulation to get you to sign up. Any company that won’t give you at least 24 hours to think over your decision isn’t worth your involvement.
Be wary of too-good-to-be true promises.
Check out the company’s business plan thoroughly and look for anything that seems fishy or unrealistic. Make sure there are testimonies of ordinary people who have found success with the business. If possible, get in touch with them, as company-sponsored testimonials could be exaggerated. Beware of companies that allude to you receiving compensation without putting time or effort into building your business. And don’t forget that, like any other self-employed person, you’ll need to file a 1099 and pay tax for any income you receive.
The world of business is moving beyond traditional brick-and-mortar based companies to include an increasing number of online-based companies, many of which are home-based. The opportunities for finding your niche and becoming self-employed are numerous, but there are plenty of reasons to also exercise caution so you don’t fall victim to a scam. Don’t be afraid to look into the emerging opportunities available through MLM; just be sure to do your homework.
Have you ever participated in MLM? How did it go?