MLM Pyramid Schemes: A Primer
Starting your own successful business has long been an important part of the American dream. Some legitimate companies rely on aspiring entrepreneurs in order to build their businesses. H&R, Block, Burger King, and Midas are a few good examples. Some of the start-your-own-business offers you’ll see are legitimate opportunities. But some are designed to take advantage of you. If you get involved with one of these companies, instead of making money, you will likely lose it. One of the most damaging and pernicious scams out there is known as a pyramid scheme. In order to protect yourself from pyramid schemes, you need learn how to identify them. So what is a pyramid scheme? Most companies that sell products make money by selling them to consumers. …
Continue Reading >MLM Glossary
Channel stuffing. Pressuring participants to buy products that they will have a hard time selling. Downline. The distributors recruited by a given distributor who receives commissions on their sales and the sales of the distributors they recruit. FTC Business Opportunity Rule. An FTC rule that requires promoters of certain business opportunities (such as franchises) to disclose sufficient financial data to enable prospective investors to understand the probability of making a profit. MLMs are exempted from this rule. Inventory loading (also called front-end loading). Stocking up on products to meet sales goals, a practice that is promoted with claims that it will push the new distributor to higher bonus and/or leadership levels quickly. In reality, it increases the risk of a significant financial loss if sales …
Continue Reading >MLM: A Warning to College Students
Someday someone will offer you an opportunity to make some extra money and possibly change your life. This person will be excited about his or her own involvement and want you to join. You will be told that people have achieved great success, allowing them to drive expensive cars, live in expensive houses, and take expensive vacations. In other words, they are living the life many people only dream about. The alleged opportunity is multilevel marketing (MLM), a common form of direct selling. To have any chance of success as an MLM distributor, it is necessary to commit your time and hard-earned money. You will need to decide if the risk is worth the reward. Each person’s situation is different, but everyone has limited time …
Continue Reading >Typical MLM Misrepresentations
Law-enforcement agencies do not require honest disclosure of essential information to MLM prospects. I have examined the compensation plans of more than 250 leading MLMs and found that virtually all hide the near-zero odds of making a profit. Here are the typical ways they exaggerate to new recruits. Misrepresentations The naked truth A great “income opportunity,” with huge incomes reported for many. Nearly all new recruits lose money. A few at the top of a pyramid of participants are enriched at the expense of the many downline participants, at least 99% of whom lose money. Everyone can do this and earn a good income. Holding up top earners as examples of what others can do is deceptive. It is unfair to sell tickets when—for nearly …
Continue Reading >The FTC’s Consumer Alert on Multilevel Marketing Is Not Strong Enough
The U.S. Federal Trade Commission suggests that people who are thinking about becoming an MLM distributor should investigate carefully before joining. Its “Consumer Alert” brochure, which has been available in various forms for many years, lists various things that should be investigated. It’s true that nobody should join an MLM without investigating. However, the probability of profiting is so small that it would be much smarter to avoid MLM altogether. I have investigated more than 200 MLMs with health-related offerings and found that their products were overpriced, misrepresented, or both. John Taylor, MBA, PhD has analyzed the business plans of more than 250 MLMs and concluded that virtually all hide the near-zero odds of making a profit. The FTC has proposed a Business Opportunity Rule …
Continue Reading >The Mirage of Multilevel Marketing
Don’t be surprised if a friend or acquaintance tries to sell you vitamins, herbs, homeopathic remedies, weight-loss powders, or other health-related products. Millions of Americans have signed up as distributors for multilevel companies that market such products from person to person. Often they have tried the products, concluded that they work, and become suppliers to support their habit. Multilevel marketing (also called network marketing) is a form of direct sales in which independent distributors sell products, usually in their customers’ home or by telephone. In theory, distributors can make money not only from their own sales but also from those of the people they recruit. Becoming an MLM distributor is simple and requires no real knowledge of health or nutrition. Many people do so initially …
Continue Reading >How to Identify a Product-Based Pyramid Scheme (“Recruiting MLM”)
Multilevel companies that are based on profits from recruiting rather than retailing should be regarded as pyramid schemes or “recruiting MLMs.” This article describes five ways to distinguish them from “retail MLMs” in which the company pays generously for retailing products without recruiting a large downline. “Recruiting MLMs” typically display five features: 1. Recruiting of participants is unlimited in an endless chain of recruiters recruiting recruiters. Ask whether unlimited recruiting is allowed. When a given market is saturated, and the program must move on to another location or introduce new products or divisions to continue, the opportunity for each new person to make money becomes less and less as the programs expands. 2. Advancement in a hierarchy of multiple levels of “distributors” is achieved by …
Continue Reading >Ten Big Lies of Multi-Level Marketing
The multilevel marketing (MLM) field grows, and its member companies multiply. Solicitations to join seem to be everywhere. Its promoters would like you to believe that it is the wave of the future, a business model that is gaining momentum, growing in acceptance and legitimacy, and will eventually replace most other forms of marketing. Many people are led to believe that success will come to anyone who believes in the system and adheres to its methods. Unfortunately, the MLM business model is a hoax that is hidden beneath misleading slogans. Calling it a “great business opportunity” makes no more sense than calling the purchase of a lottery ticket a “business venture” and winning the lottery a “viable income opportunity for everyone.” MLM industry claims of …
Continue Reading >Four Lies about MLM
The lies that limit the future of network marketing began as so many untruths do. They were told initially to bolster up our insecurity — in this case, our industry’s perceived lack of self-esteem. The lies were harmless “little white” (i.e. “okay”) ones, meant to make us seem bigger and better than we really thought we were. As they always do, the lies backfired. Now, when people ask us about this or that “false-fact”, and we have to admit to their fabrication, we come up looking smaller and worse than we are. What lies am I talking about? These: The Wall Street Journal has said that by the year 2000, 60 to 70 percent of all goods and services will be sold through MLM. “Network …
Continue Reading >Unethical Selling by a Doctor: An MLM Victim Speaks Out
My wife Tawnya has been victimized by a doctor who treated her for approximately 24 months. About five months after she began seeing him, the doctor recommended that she purchase products from the Wellness International Network (WIN), a multilevel marketing firm that specializes in weight-management, skin-care, and nutritional supplements. After presenting his sales pitch in his office, the doctor persuaded Tawnya to buy more than $100 of his “Chinese herbal nutritional supplements.” He assured her that these products would result in weight loss, improved energy, enhanced mental acuity, and many other benefits. Not long afterward, she was surprised to receive a new salesman’s kit in the mail informing her she was an official distributor for the WIN product line. The doctor had failed to mention …
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