Are those MLMs Legitimate?

Multilevel Marketing (MLM) – aka Network Marketing – is one of the hot topics for home business.  I receive emails for MLM opportunities every day with many promises of large returns on investment.  Many – if not most – of these positions are over-hyped, deceptive or scams.  The latest major scheme is ZeekRewards, referred to as a $600 million dollar Ponzi and Pyramid scheme by the SEC.  On Friday August 17, 2012, the SEC “…announced fraud charges and an emergency asset freeze to halt a $600 million Ponzi scheme on the verge of collapse.”1  Though ZeekRewards is alleged fraud; some MLMs are perfectly legitimate and a good way to make some extra money on the side.

With all the misinformation and deception in the MLM world, how does one determine which are honest?  ConsumerFraudReporting presents 8 basic questions to ask before signing up:

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

ConsumerFraud further notes that “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. There is no such thing as “passive residual income” – that phrase alone is a tipoff to a scam.”2

Network Marketing uses a downline stream model for making money.  Independent partners of MLM companies sell products and also try to find and recruit other people who themselves sell products and recruit new people. The recruiting part is often called sponsoring.  The initial recruiter makes a percentage from each “downline” recruit.  See graphic above for an illustrated version of this concept.

The lesson here is simple: if it sounds too good to be true, it is.  If anyone and everyone could make zillions of $$, wouldn’t we all be wealthy?  Sound MLMs have unique and beneficial products –Tupperware , Pampered Chef or Avon are examples.

As alternatives, consider selling through eBay or similar sites to make money.  eBay has many wholesalers and major product lines in its online catalogue.  Just like an MLM, selling through eBay is a home business model without the same risk level.

By Dion D. Shaw

Dion D. Shaw is the founder and owner of Homepreneurs

Homepreneurs.  New Day.  New Opportunity.

References

1) http://www.sec.gov/news/press/2012/2012-160.htm. Retrieved 8-20-2012.

2) http://www.consumerfraudreporting.org/MLM.php. Retrieved 8-20-2012.

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7 Responses to Are those MLMs Legitimate?

  1. Startups says:

    Yes I agree on not all MLM are fraud or scam because eventually you will be the one that will dictate whether you will be successful on that kind of field or not. Thanks for sharing!

  2. silver price says:

    Welcome to the False Profits Blog.When I wrote the book, False Profits , 10 years ago, I described MLM and pyramid schemes as “kissing cousins,” closely related, yet not necessarily one and the same. With 10 years of additional research, courtroom experience, communications with thousands of participants, and in-depth analysis of scores of MLMs, I now describe the situation quite differently .Our report on the commission payouts of 11 major MLMs shows that more than 99% of all MLM participants lose money every year. Yes, 99%. That is not hyperbole. The data offered by the MLM companies themselves confirm this amazig fact.MLM, therefore, cannot be called a “business opportunity.” The idea of MLM offering the average person a viable or an “extraordinary” income is a myth, which is to say, a lie.Additionally, none of the MLMs studied – all of which were members of the Direct Selling Association – had significant numbers of retail customers. The sales people were, essentially, the only people buying the goods! Each of the salespeople signed contracts, paid fees, and, in order to qualify for the promised “rebates,” purchased a monthly quota of products. The salespeople, then, were investors and participants, not customers. Moreover, 60-80% of of them quit the schemes within 12 months, and they never bought the products ever again!Without retail customers or “end-users”, MLM cannot be “direct selling.”So what is MLM? And what sustains MLM? Obviously, it is not products — it has no real customers and its salesopele quit buying within a year. And, certainly it is not the income to the salespeople, with 99% loss rates!MLM is sustained by the “myth”, the disguise, and the hopes it generats among those it recruits. We shall investigate this myth in much more detail in this blog. Your views are welcome.

  3. avon careers says:

    avon careers…

    […]Are those MLMs Legitimate? « Homepreneurs's Blog[…]…

  4. Dee says:

    Sorry, I can’t agree that Tupperware, Avon, or Pampered Chef have a “unique and beneficial product” vs. a product that promotes wellness. I have been in MLM for over a year. I make half of what I made as a Registered Nurse (Certified in Oncology) of 17 years…in ONE year of doing this business!!! I drive a BMW that my MLM company pays for, as do 20+ members of my team. I am off of FIVE prescription meds and my son’s tumor shrank (confirmed on PET scan) as a result of the product we first used as customers, and now I market. So yes, MLM works if you work it. I have a HUGE customer base, and am still working to grow my sponsored members. My company has been in business 8 years, doing 10mil a year PRIOR to transferring to a MLM model….we have grown by 660% since that time (September 2011). I am PROUD that the main ingredient in our product has OVER 950 studies on PubMed.gov (as an RN, THIS fact was important to me…and TRUST, I ABSOLUTELY did the research before giving it to my son). So yes, there are VERY legitimate MLMs…with VERY beneficial products (I’m not talking make-up, pots & pans, or plasticware). Thanks for your post. Interesting comments as well. Dee PS: I did not include my website because I am not here to promote my product or business…I simply wanted to respond to the post and comments.

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