Multi-level marketing (MLM) or network marketing programs are a method of selling goods or services through distributors. These programs typically promise that if you sign up as a distributor, you'll receive commissions for your sales and those of the people you recruit to become distributors. These recruits are referred to as your "downline."
Some multi-level marketing programs are legitimate. However, others are illegal pyramid schemes. In pyramids, earned commissions are based on the number of distributors recruited. Most of the product sales are made to these distributorsnot to consumers in general. The underlying goods and services, which vary from car leases to cosmetics to vitamins, serve only to make the schemes look legitimate.
Joining a pyramid is a risky proposition because the vast majority of participants lose money to pay for the rewards of a lucky few. Most people end up with nothing to show for their money except the expensive products or marketing materials they're pressured into buying.
If you're thinking about joining what appears to be a legitimate multi-level marketing program, take time to check out everything about the program. For example:
What's the company's track record? What product does it sell? Does it sell products to the general public? Does it have the evidence to back up the claims it makes about its product? Is the product competitively priced? Is it likely to appeal to a large customer base? How much is the investment to join the program? Is there a minimum monthly sales commitment to earn a commission? Will you be required to recruit new distributors to earn your commission?
Be skeptical if a distributor tells you that for the price of a "start-up kit" of inventory and sales literatureand sometimes a commitment to sell a specific amount of the product or service each monthyou'll be on the road to riches. Many times participants spend a lot of money to "build their business" by participating in training programs, buying sales leads or purchasing the products themselves. Far too often, their own purchases are all they will ever see for their investments.
Also, if you decide to become a distributor, you are legally responsible for the claims you make about the company, its products and the business opportunities it offers. That applies even if you're repeating claims you read in a company brochure or advertisement. The Federal Trade Commission advises you to verify the research behind any claims about a product's performance before repeating those claims to a potential customer.
In addition, if you solicit new distributors, you are responsible for the claims you make about a distributor's earning potential. Be sure to represent the opportunity honestly and avoid making unrealistic promises. If those promises fall through, remember that you could be held liable.
The Federal Trade Commission (FTC) suggests that you use common sense when evaluating a multi-level marketing opportunity and consider the following tips before you make your decision:
1. Avoid any program that pays commissions for recruiting additional distributors. It may be an illegal pyramid.
2. Beware of programs that ask new distributors to purchase expensive inventory. These programs can collapse quicklyand also may be thinly-disguised pyramids.
3. Be cautious of programs that claim you will make money through continued growth of your "downline"-the commissions on sales made by new distributors you recruitrather than through products you sell.
4. Beware of program that claim to sell miracle products or promise enormous earnings. Just because a promoter of a program makes a claim doesn't mean it's true! Ask the promoter of the program to substantiate any and all claims with cold, hard evidence.
5. Beware of shills"decoy" references paid by a programs promoter to describe their fictional success in earning money through the program.
6. Don't EVER pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to carefully think over your decision to join. Talk it over with your spouse or partner, a knowledgeable friend, and an accountant or lawyer.
7. Do your due diligence! Check with the Better Business Bureau and state Attorney General's office about any porgram you're consideringespecially when the claims about the product or your potential earnings seem too good to be true.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261.
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