The Drawbacks To MLM
Every MLM company has its own set of terms and policies to earn money. Some firms have come up with innovations to existing business models implemented by other more established and successful network marketing companies. As a result, some MLM ventures are accused of setting high investment costs and focusing on recruitment rather than sales.
In other firms, independent distributors are required to reach a specific quota for the number of recruits and sales. In some cases, these sellers may be required to purchase slow-moving stocks, leading to an additional expense that a seller may or may not recoup on time.
Additionally, some companies impose better returns for recruiting new members rather than moving stocks, blurring the line between MLM and pyramid scheme practices.
How It Is Different From A Pyramid Scheme
MLM is a completely legitimate business model. If done properly, it can become highly profitable; there are people who claim to have received a heavy windfall because of it.
Pyramid schemes, on the other hand, are deemed unlawful because they don’t offer anything in exchange for an investment—just a promise of higher returns, which are often mathematically impossible. The uplines reap all the benefits, while the downlines are placed in a shaky position. Sooner or later, the earning capacity of downlines becomes limited until it vanishes.
What To Do Before Getting Involved
Due diligence is needed before investing your hard-earned cash in MLM companies. Do your homework and conduct extensive research about the company you’re planning to get involved in.
Perhaps the most important element to look at is how transparent the firm is. Ideally, it should be listed on the stock market. A publicly traded company must divulge their quarterly earnings, allowing the public to see and analyze their financial soundness. A company that has been present for decades and produces products you personally use is also a good choice.
The Red Flags
Likely inspired by the success of other MLM companies, network marketing firms have proliferated, especially online.
Check whether the MLM firm has negative ratings and reviews, is using false advertising, or is facing any lawsuits. There are sites you can use to check the legitimacy of an MLM company.
The Federal Trade Commission (FTC) presents a good reminder in spotting an MLM scam: if the earnings are heavily hinged on recruitment and not on moving products, then it’s likely not MLM but a pyramid scheme, which is an unlawful way to make money.
The Bottom Line
MLM companies employ diverse tactics to attract members and expand their business. A great majority of individuals are skeptical about the system, while others have claimed to succeed in becoming an investor.
Either way, it always pays to perform due diligence before parting with your hard-earned cash. Check sites that specialize in spotting scams. Read reviews and take heed of the red flags discussed in this article.
And, as with other things in life, always remember that if an offer is too good to be true, it probably is.