What is MLM About – Is It A Scam?

MLM Pyramid

MLM – Scam or Real Business Opportunity

I am sure we have all heard the question, What is MLM about and Is MLM a Scam or a real business opportunity? I have personally asked this very question and have come to the conclusion that it all depends.  Many will say that ALL MLM’s are scams but I tend to disagree.  As with anything in life,  you must educate yourself so you can then make an informed decision about any company – MLM’s are no different.

What is MLMMLM pyramid

MLM stands for multi level marketing and is often associated with pyramid/ponzi schemes.  This is a bit misleading as not all MLM companies are bad.  This is an area where you definitely must do your research before considering joining this type of business.

Multi Level Marketing essentially pays you for any sales that you make as well as the sales of those that join under you (also referred to as a downline).  Depending on the company, the payment for sales made from those in your downline will vary, meaning you will make money if someone joins under you as well as if someone then joins under that person and so on.

You will also receive payment for the sale of a service or a product.  This should be the focus of any good business model.  The service or product being provided should offer real value to its customers and not simply a cover to avoid being labeled a pyramid scheme.  This is where things become tricky when trying to determine the “good” ones from the “bad” ones and why so many simply advise staying away from MLM’s altogether.

The Bad vs The Good

Many MLM companies have come and gone because they have been shut down for illegal business practices or simply went out of business.  It is illegal for any MLM to simply promote the recruitment of people.  There must also be a product or a service being provided.  The company must be able to sustain itself if the recruitment of people should slow down.  The good companies will outlast the test of time where the bad ones will not.

Amway is a company that has been around for a very long time and is one of the first to be investigated by the FTC (FTC vs Amway) for illegal business practices; however, the suit ended up in the win column for Amway.  The conclusion was that they are by definition not a pyramid/ponzi scheme because they have legitimate products to sell and they do not focus on recruiting as the main ingredient to their business model.  As a result, many MLM’s have sprung up since then and have basically mirrored what they have done.

walking a thin lineUnfortunately you will see many MLM companies walking a very thin line when it comes to providing a legitimate service or product, and those are the ones you need to watch out for because they are simply hiding behind a loophole when it comes to the law.  The bottom line is this, there are just too many of the bad ones and it is difficult for all of them to be caught and investigated in a timely manner. This is why the consumer must do research before even considering a MLM as a business opportunity.

There are plenty of resources available to determine if a MLM company is currently being reviewed for illegal business practices or if any have been banned from certain countries.  My thought is this, if a company has been banned from any country, then stay away.  It is a huge red flag even if your country has not caught on yet.  You do not want to be promoting something that is considered illegal anywhere.  Your reputation is on the line and you cannot put a price on that.

Resources

MLM Watchdog

Great site for up to date information on MLM’s.  The good, the bad, and the ugly!

FTC – MLM Tips and Advice

Review the FTC’s website for additional tips as to what you should look for when trying to determine if a company is legitimate or if there are red flags indicating you should look elsewhere.

FTC – Report a Complaint

If you have a complaint or an issue regarding an MLM company, report it to the FTC.

RECAP

Don’t stop at the point of determining whether or not there is a product or service being provided.  You must also ask yourself an important question, is this really legit?  Does anyone even need this and is it worth charging for?

It is obvious that some have simply copied a business model, put there name on it, added a price to it and labeled it a viable service; however, if I can get the very same thing somewhere else for free, then it is not valuable plain and simple.

What to Look For

  1. Good Reputation

  2. They have stood the test of time and are still going strong

  3. There is a legitimate product(s) tha has proven to be of value to customers

  4. Prices are not over inflated

  5. The company has been able to sustain itself on a product or service even after all the recruiting hype has slowed down

When To RUNrun away

  1. There is no product or viable service being provided

  2. There is a large fee to join the business

  3. You are promised that you can make a lot of money without doing a lot of work

  4. You are encouraged to make purchases to advance your status rather than making sales

  5. You need a doctorate in order to understand the comp plan

  6. You make more money from recruiting than you do from selling products

  7. Does it Make sense?  Don’t get sucked into all the hype of making millions that you forget to ask yourself this very important question.

  8. High pressure to join!  Take your time to look things over and if you get slack for doing so, then consider another company.

  9. Company is listed on a watch list or has already been banned in other countries

  10. A plethora of complaints and bad reviews

 

In Conclusion

I hope this post will shed some light on whether or not an MLM is right for you.  I do not think they are all scams, but I do think you need to do some serious research and use caution to make an informed decision before deciding to join one.

What has been your experience with MLM companies?  Please share, would love to hear what others have experienced.  As always, all comments are welcome.

14 comments

  • Great post Kellie and you made great points as far as the pros and cons of MLM are concerned!

    One thing I find from doing some research on MLM is that most of the scams out there really focus aggressively on more and more recruitment instead of reinvesting their profits in a greater product for their audience and training their people how to build a proper downline so everyone wins long-term!

    Thanks again and looking forward to your next post!

    Stephen

    • Hi Stephen,

      Yes, it is difficult to get away from the heavy recruiting involved with most MLM’s. If you are not someone who likes to sell and convince people why you are the best, it is probably not the best thing for you.

      I do find some products are worth my time and do use a few that are associated with a MLM company but that is about as far as I take it.

  • lis.berridge@gmail.com

    This is a very informative article about MLM. As you mentioned many people say steer clear but your arguments are very valid.

    I use to do Amway, many moons ago and left as I found that the products were very expensive in comparison with high street products. However, I must admit that Amway’s products are exceptionally good and do what they profess they will.

    I am still not convinced about taking this route again to earn an income as it is a very cut throat industry and you have to be a very good sales person. Unfortunately, this is one character I lack.

    Just one question. Is network marketing the same as MLM? I have not looked into this as I just presume that they are the same.

    Lis.

    • Hi Lis

      I am told Amway has exceptional products but have not looked into their pricing to know how competitive they are. It does not surprise me to hear you say they are overpriced as that is the case with most MLM products.

      Network marketing and MLM are essentially the same thing as some network marketing companies have the same MLM pay structure. With Network Marketing, there is always an end product or products being promoted where as with MLM’s that is not always the case, hence the pyramid schemes that unfortunately still exist out there.

      Thanks for commenting. Have a great day!

  • I was involved with a couple of MLM’s 20+ years ago before e-commerce was available. I wouldn’t necessarily say that ALL MLM’s are scams but you aren’t likely to achieve long term wealth the way people could in the past.

    When it was a new industry and still wide open, there was tons of opportunity. Now, they have been done to death and the well has been poisoned for most people.
    It’s hard to find people now who haven’t heard of MLM’s and very few people are even open to sitting down and looking at one.

    In my opinion, you’re better off learning to build an affiliate marketing business than an MLM. Your income isn’t dependent on the ambition of the people you recruit. Your websites ALWAYS work for you around the clock. It just makes more sense to me.

    • Hi Steve,

      Most people I meet have been involved with one at some point and time during their life. Unfortunately most have bad experiences to share.

      I too feel there are many MLM’s that are decent companies with good products but it will required research to ensure you know exactly what you are getting into. Affiliate marketing in my opinion is the best way to go and you do not need to convince anyone to do anything, which means you do not have to worry about possibly causing tension with friends and family:-).

      Thanks for stopping by. I appreciate the comments.

      Have a great day!

  • Hi, I stumbled upon this site, which is amazing I must say! Such a useful and quality content and site layout overall .
    Very good written and easy to understand, especially for beginners.
    I will definitely visit your site in the future, thank you very much for sharing your knowledge with us and good luck.
    Best regards

  • I see a lot of us are interested in MLM programs because it seems to be pretty profitable in the long run. I myself don’t really like it, as I see most of the products being promoted as an MLM just seem forced and they are not of high quality.

    MLM is a bit like affiliate marketing but instead of just profiting from one sale, you profit from all the sales by recruiting new sellers and I think that’s why MLM just seem much more forced and fake than affiliate marketing, if you know what I mean.

    That said, there may be some good MLM out there that I haven’t heard of. What are the best ones to you?

    Thanks in advance!

    • Honestly there are very few. I have been a part of Mary Kay and ID LIfe, both of which I feel are legitimate companies with REAL products to offer. Money is being made outside of recruiting and the products are really good. The key is to do your research on the recruiting practices as well as the quality of the products to ensure all is on the up and up. If any doubts, or high pressure to join, move on :-).

      Thanks for stopping by, Anh. Good luck to you!

  • It is getting harder to distinguish between an MLM company and a pyramid scheme. Pyramid schemes are getting smart to label themselves as an MLM.

    They do this by creating a low quality info product and then they think that this “product” will cover them.

    I am also not a big fan of MLM because the business model just do not work for me.

  • Hi Kellie. You have a beautiful site. I once got involved with an MLM program. They were selling a drink product. And it was actually a great product. The trouble I ran into was that I was still pretty new to the internet. And the learning curve was very steep. Learn to build a webstite, learn to sell a product, learn to write a blog and get traffic, I understand it now but back then it was a mystery. Also their product was starting to pile up in my garage because I couldn’t drink it as fast as they were selling it to me! I believe mlm’s work, just do your research. I didn’t.

  • The concept of network marketing is very flawed because they are basically relying on the word of mouth of their recruiters. That’s why they make you concentrate more on recruiting as oppose to the “Product.” They need the exposure and they have to rely on people joining and paying the “entry fees” as well as these “motivational resorts/conferences” in order to be able to pay their associates….among other issues within individual companies. To me it’s just a messy industry

  • Thanks for sharing such an informative piece. It was very helpful indeed. We are also into the same genre as you, if you have any requirements or queries regarding MLM networking softwares, VentaForce can guide you. Visit us here at http://www.ventaforce.com

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