Are MLMs a Scam?
MLMs often require participants to purchase large amounts of products up front, which can lead to significant inventory and financial loss; such was the case with LuLaRoe.
Many MLM programs promote lavish lifestyles on social media posts, yet these enviable lifestyles are typically only achievable by people at the top of the pyramid.
The Basics
MLMs (Multi-Level Marketings) are an expanding industry. These companies sell cosmetics, lotion, essential oils and jewelry and typically target stay-at-home parents looking for flexible work with large social networks – offering the promise of big rewards despite possible associated risks.
Legitimate multilevel marketing (MLM) companies boast genuine products, an easy commission structure and are focused on product sales; however, some MLM programs may violate business ethics regulations if their focus lies more in recruiting new participants than marketing company merchandise; such schemes could potentially violate the Business Opportunity Rule and should be avoided.
Predatory MLMs pose a distinct threat to recent immigrants, minorities, and lower-income communities that value community bonds and trusting relationships. Predatory MLMs lure people into risky businesses with misleading health claims that tempt people into joining. Furthermore, recruitment demands place undue strain on participants who must also recruit other participants and make sales which often results in significant financial losses for participants. If considering joining such schemes it is wise to carefully consider costs such as training/travel expenses/inventory purchases/promotional materials/management fees/record sales management/record sales costs before making your decision.
Signs of a Scam
Even after documentaries and podcasts demonstrate that most MLM participants lose money, many still get drawn into these lucrative opportunities. Also known as direct selling companies or MLMs, these businesses sell products like essential oils and leggings from person-to-person without physical storesfronts; though not as illegal as pyramid schemes, MLMs often charge large upfront inventory costs while rewarding distributors according to sales made to new recruits (i.e. their downline).
Shady MLMs tend to conceal their sales associates’ financial results. If someone claims they sold millions in product, be wary. If they cannot provide you with sales numbers or names of all their upline and downline members, leave immediately. Likewise, any time someone pushes you into purchasing more product than is appropriate or salesable (they could be trying to lure you into pyramid schemes).
Avoiding a Scam
Although you might be eager to jump at an exceptional business opportunity, take your time reviewing all paperwork carefully. If possible, have someone independent from the company go over all documents for you; ask them to evaluate possible earnings and verify whether or not the claims of the company can be supported by facts.
Be wary of any company that attempts to pressure you into signing up instantly. A legitimate MLM should offer low entry costs and provide a clear overview of how you can earn money; additionally, its focus should be more on product sales rather than recruitment.
Be wary of companies making exaggerated income claims or compelling participants to keep inventory. While MLMs may legally require participants to buy products to sell, forcing them to keep more inventory than necessary could indicate a scam.
Final Words
While MLMs (multi-level marketing companies) can be an attractive career option for some people, it’s crucial that they conduct proper research. Look for companies offering genuine value with clear instructions for earning money and prioritizing product sales over recruitment as they’ll offer more financial security for you and your family.
Scams and manipulative MLMs will often use pressure tactics to induce you to sign up before doing your research. They might use fear, desire or both in an effort to influence you to join. They might also encourage spending a great deal of time around other distributors or recruits – creating what may feel like a cult-like atmosphere.
MLMs often utilize a pyramid structure, and some have even been accused of operating illegally. You can identify an MLM pyramid scheme by looking out for profits funneling up toward its center point; another telltale sign would be when they only offer products instead of cash payments (ie: you must purchase products every month just to qualify for commission payments – this isn’t a legitimate business model).
