Are Multi Level Marketing Companies Pyramid Schemes?
Advocare. ItWorks. Young Living. Pampered Chef. Silpada. It seems like everyone knows at least one person that is a member of a multi level marketing (MLM) company. But are all of these companies scammy pyramid schemes? Let’s take a look.
First of all, let’s look at what a multi level marketing company is and what a pyramid scheme is. A multi level marketing company has a marketing strategy where the sales force is compensated not only for the sales they generate, but also for the salespeople they recruit. For every salesperson someone recruits, they get a commission of their sales. A pyramid scheme starts with a person who recruits someone else who is required to make an investment. This investment goes to the initial recruiter. In order to make their money back, the second person must also recruit new people. If they are able to recruit 10 new people, they get a lot of return on a small investment. The problem with pyramid schemes is that there are only so many people who can join, and eventually it all ends. Since it’s impossible to sustain itself, eventually people lose money down the line.
So are all MLMs pyramid schemes? No, but some are. So if you are considering joining one, you need to really investigate and read through all of their information carefully. If you are considering joining one, here are some things to think about:
- How long has the company been around? Reputable MLMs should go back at least 10 years. Since pyramid schemes are illegal and unsustainable, the executives will usually close doors as soon as they turn a decent profit. Obviously, there are legitimate, newer MLMs, but treat any that have been around for less than 10 years with caution.
- What’s the company’s structure? In multi level marketing, salespeople are the driving force. All of the work is done by salespeople introducing new people to their product. If a company emphasizes recruiting new members into your downline more than it emphasizes sales, then there’s a good chance it’s a pyramid scheme.
- What’s compensation like? MLMs make money off of sales, not contribution of new members. If a company glosses over compensation and instead only talks about how much you can make AFTER you’ve been promoted, steer clear.
- What’s the refund policy? Both MLMs and pyramid schemes often make you have a large home supply of product (that you purchase) to sell. If you are unable to sell it, will you be able to return it? Most pyramid schemes do not allow returns. Even if it’s a reputable MLM, make sure you can return any product you are unable to sell in case it doesn’t turn out to be your thing.
- How do you get promoted? In pyramid schemes, you get promoted by how many people you recruit. In multi level marketing, you get promoted by your sales numbers as well as the salespeople you recruit.
- What are the sign-up costs? Pyramid schemes obviously have a beginning contribution, but many MLMs also have sign-up fees. Look at the fee, see if you can afford it, and think about whether you’ll be able to make that back and more with the product you’ll be selling.
- Do you have to buy products continually every month in order to get paid? Many MLMs require this. Will you be able to afford this up front? Will you be able to sell all of it?
- Who are you going to sell to? You’re usually on your own as far as finding clients to sell to. Will your friends be interested in this product? Are you outgoing enough to sell this to strangers?
- Does the product have good reviews? Many MLMs sell beauty and health products like supplements, body wraps, and makeup and skincare items. Look online and see if people like this brand. Does it have a lot of bad reviews? Are the supplements safe? Make sure you pick a product that you can sell in good conscience.
- Is this a product you use and love? If you’ve never used the product and are thinking about selling it, take a step back. If you don’t know anything about the product, how can you sell it? If you have a product that you use and love that is from an MLM and feel that you can sell it to other people, then maybe it is a good choice for you. But if you don’t use the product, get to know it before you sign up.
These are just some of the things you should consider before joining an MLM. There are definitely some good ones out there, but there are also some that are complete scams.
Are you a part of an MLM? Feel free to give us some insight into your experience in the comments!