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.