Multilevel Marketing (MLM) Plans

If you sign up as a distributor, you may be promised commissions or other rewards-for both your sales of the plan’s goods or services and those of other people you recruit to become distributors.

Is the product you’re selling any good?

Many companies that market their products through distributors sell quality items at competitive prices. But some offer goods that are overpriced, have questionable merits or are downright unsafe to use.

The Federal Trade Commission warns consumers to apply a healthy dose of caution before buying products advertised as having “miracle” ingredients or techniques and guaranteed results. Many of these “quick cures” are unproven, fraudulently marketed and useless or even dangerous.

Before using one of these products, the best prescription may be to check with a health professional.

Business Opportunities For Sale

Some distributors sell more than diet and exercise plans, vitamin supplements or wonder creams. Many may sell “opportunities,” too-a chance for you not only to buy, but also to market, the products. In addition to describing the benefits of their product or program, these distributors may encourage you to become a distributor. If you sign up as a distributor, you may be promised commissions or other rewards-for both your sales of the plan’s goods or services and those of other people you recruit to become distributors. These plans, often called “multilevel marketing plans,” sometimes promise commissions or rewards that never materialize. What is worse, consumers are often urged to spend or “invest” money in order to make it.

Watch Out For Pyramid Scams

Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors. They’re actually illegal pyramid schemes.

Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people-except perhaps those at the very top of the pyramid-end up empty-handed.

How to Evaluate a Multilevel Marketing Plan

If you’re thinking about joining what appears to be a legitimate multilevel marketing plan, take time to learn about the plan before signing on.

What’s the company’s track record? What products does it sell? How does it back up claims it makes about its product? Is the product competitively priced? Is it likely to appeal to a large customer base? What up-front investment do you have to make to join the plan? Are you committed to making a minimum level of sales each month? Will you be required to recruit new distributors to be successful in the plan?

Use caution if a distributor tells you that for the price of a “start-up kit” of inventory and sales literature -and sometimes a commitment to sell a specific amount of the product or service each month-you’ll be on the road to riches. No matter how good a product and how solid a multilevel marketing plan may be, expect to invest sweat equity as well as dollars for your investment to pay off.

Your Responsibilities as a Distributor

If you decide to become a distributor, remember that you’re legally responsible for the claims you make about the company, its product and the business opportunities it offers. That applies even if you’re simply repeating claims you read in a company brochure or advertising flyer.

When you promote the qualities of a product or service, you’re obligated to present those claims truthfully and to ensure there’s enough solid evidence to back them up. 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.

Likewise, if you decide to solicit new distributors, be aware that you’re responsible for any claims you make about a distributor’s earnings potential. Be sure to represent the opportunity honestly and to avoid making unrealistic promises. If those promises fall through, remember that you could be held liable.

Warning signs and red flags that could alert you to a MLM scam

Multi level marketing is a method businesses use to market their products directly to consumers through relationship and direct selling. It works by having distributors represent the parent company. Distributors are generally non salaried and make their money by commission off sales made by their own independent organization. These organizations are made by either building up their own customer base who purchase directly from the parent company or by recruiting other sales people who perform all the leg work for the distributor. A distributor can make money by selling the parent company’s products wholesale to their own organization.

The description offered above for multi level marketing is almost indistinguishable from illegitimate pyramid or ponzi schemes. It can be very difficult to tell between legitimate MLM and scams. If you’re considering becoming a distributor or a link in a distribution organization, we suggest bearing in mind the following:

Multi-Level Marketing Tips:

  • Can you make a profit by only selling the product/service? Beware the company spokesperson who says the only way to make money is by hiring other distributors. This is an opportunity to walk away from. If they say you can increase your chances of making money by hiring other distributors, that’s OK. Just as long as you can still make money in addition by selling their products/services.
  • Consider the MLM parent company very suspiciously. Research the parent company as much as you can. Try to obtain credit reports from Dun & Bradstreet. Ask lots of questions. How long have they been in business? Where do they conduct business? Are they a member in good standing with the Better Business Bureau? What’s their litigation history? Are there any current lawsuits pending? Are they a member of any MLM or Direct Marketing professional organizations?
  • Review their products/services very carefully. Are their products/services easily attainable through other channels? How unique are their products/services? Can any claims made about their products/services be validated by independent entities? How do you feel about their products/services? Are they something you can really believe in and be passionate about? Do you know anyone who’s purchased from this company in the past? What was their experience?
  • Appraise yourself. Do you really think of yourself as a salesperson? Is this the right opportunity at the right time in your life? Do you have an extensive network of business and personal contacts you can leverage? How many other distributors are in your geographic area? Would you be the first or one in a long line of already existing distributors?

When contemplating a new business venture, please keep in mind that many more businesses fail than succeed. A key question to ask yourself is, “Can I really afford to lose the money I’ll be investing in this venture?” If after taking everything above into consideration, you conclude that MLM is for you, please keep the following tips in mind:

  • Walk away from any opportunity that only offers commissions for recruiting other distributors.
  • Avoid plans that ask you to pay for very high priced inventory in the beginning.
  • View opportunities with skepticism when they promote profits more through growing your own organization rather than through selling their products/services.
  • Beware grandiose claims and miracle cures – make sure the parent company can substantiate their products/services performance.
  • Take your time in making any decisions. Discuss the opportunity with family, friends, a lawyer, an accountant, etc…prior to signing any contracts. Don’t let them pressure you into something before you’re ready.
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