What is a MLM Scam?The purpose of this article is to discuss the term MLM scam. Many people think that network marketing is a scam. They believe this for many reasons. Normally, they’re just misinformed or uneducated about the industry. This happens because they’ve never been involved with the industry, and more importantly, because they’ve never learned about the business model in any type of formal education. The network marketing concept is a fairly new business model. It started sometime around the 1950s in the United States. Nutrilite was the first MLM Company I’ve found. Several years later, Amway formed in 1959. Since then, thousands of network marketing companies have sprung into existence. But few have stood the test of time. During the past fifty years, there have been THOUSANDS of complaints and lawsuits concerning network marketing. Many people got involved under false pretenses and didn’t achieve the success they thought they would. As a result, some distributors sued their MLM Company, sponsor or upline distributors. Or they filed complaints with the Federal Trade Commission (FTC) and Better Business Bureau (BBB). Amway, one of the biggest and oldest MLM companies, appeared in court countless times. However, one case in particular is really important for the industry. In 1979, the Federal Trade Commission ruled that Amway and network marketing is a legitimate business opportunity. Amway is not a MLM scam. In fact, the Judge made the following statement. “The Amway system is based on retail sales to customers. Respondents have avoided the abuses of pyramid schemes by (1) not having a head-hunting fee, (2) making product sales a pre-condition to receiving the performance bonus, (3) buying back excessive inventory, and (4) requiring that products be sold to consumers. Amway’s buyback, 70% and ten-customer rules deter unlawful inventory building. Amway is not in business to sell distributorships and is not a pyramid distribution scheme.” Therefore, a network marketing company must meet the following criteria to be legitimate: • Not pay a recruiting fee • Distributors earn a bonus by selling products • The company must buy-back unwanted inventory from distributors • The company must require distributors to sell products to consumers If a company didn’t meet these criteria, it would be considered a MLM scam. Since then, some thirty plus years later, the MLM industry has evolved and grown. Most MLM companies comply with these rules; however, some are “borderline illegal.” Even worse, many distributors “twist the rules” and misinform their downline and potential prospects. This is where most of the problems in our industry stem from. For instance, many MLM distributors tell their downline to “focus on recruiting distributors and don’t worry about finding any retail customers.” Or they tell their downline to “be their own best customer and don’t worry about retail sales.” In my opinion, these are big No-Nos. Most network marketing companies are legitimate. They WANT to comply with the law, because they don’t want to get shut down. I can’t say I blame them. Therefore, they buy-back unwanted inventory from their distributors. They draft up “policies and procedures” that all distributors must obey. They only pay distributors for “sales volume.” All of these things are good things to protect the company and the distributors. Once again, I’ve found that it’s normally the distributors who manipulate the system and make the industry look bad. That’s why I believe all MLM companies should do a better job of “monitoring” their distributors to make sure they comply with the established rules. Distributors failing to comply with the rules should be warned. Repeat offenders should be terminated from the company and banned from the industry. This would solve lots of problems. If you are evaluating different MLM companies, there are a few simple things you can do to determine if it is a legitimate opportunity or it is a MLM scam. Here are six simple ideas to help you evaluate a potential network marketing company: • Is there a product or service? Does the company sell a product or service? Or, do you get paid simply to recruit people? If there isn’t a product or service, run the other direction. • How do you get paid? Find out how you get paid. Do you make money when people join the company? If so, is it from a “starter kit” with products that new distributors purchase (which is legit), or do you get paid just for sponsoring a new distributor? • Are you promised overnight success? Normally, it’s the people involved in the industry who mess this up. If the person showing you the presentation promises you overnight or instant success, I’d run the other direction fast. MLM is simple, but not easy. It takes consistent, hard work for a few years to build a solid business. • Is the company recognized by the Direct Selling Association and Better Business Bureau? You want a company that is a member of both these organizations. • Does the company have a good reputation? If you do an internet search for the company, do you find hundreds (or thousands) of horror stories. If so, stay away from that company. • Check eBay: Do an eBay search for products from the company you are researching. Are there hundreds or thousands of people trying to “unload” their product inventory? Are there lots of people unloading tapes, books and training materials from their company? If so, look for another company. Remember, just about every business in the United States is regulated by the government. That means that it must comply with certain laws, or it will get fined and/or shut down. For example, most network marketing companies place the “this product and statements about this product are not approved by the FDA” under their product descriptions. This keeps them from getting in trouble. In conclusion, a MLM scam is a network marketing company or group of distributors who don’t comply with established laws and regulations. For a company to be legit, it must obey all laws. If it doesn’t meet these criteria, it is a MLM scam. I would encourage everyone to do their due diligence and thoroughly research a company, before they join. If you do that, you can set yourself up for success. On a side note, do you know about a MLM Scam? Have you been involved in a MLM Scam? If so, why not share your story with others. Help others avoid getting scammed. Just scroll down to the bottom of this page and type in your 150+ word story and click submit. I will review your entry. If it is approved, the rest of the world will see it too. Thanks.
Have A Great Story About This Topic?Do you know about a MLM Scam? Have you been involved in a scam? Share your story with others, so they don't get burned too. Thanks. What Other Visitors Have SaidClick below to see contributions from other visitors to this page...
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