No business model has faced more scrutiny than Multi Level Marketing. On the one hand, it promises multifold growth and profit; on the other, it’s marred by pyramid schemes initiated to dupe customer money. Fraudsters actively employ the internet, Social Media, and other marketing channels to promote Ponzi schemes in the name of MLM, and the sad part is, that many lose their hard-earned money, unaware of the actual intent of this MLM business offers. So, the big question is, how to avoid MLM scams? What are the red flags that scream scam?
We have curated this post to empower our readers with the information to spot MLM scams. We will delve into details about means and methods to identify and avoid MLM scams so that no one can dupe you off your money.
Unmasking the MLM Deception
Scammers exploit the very model of MLM to rob people’s money. Therefore, understanding the MLM model and its working is vital if you hope to avoid MLM scams.
Understanding the MLM structure
The working of the MLM model is simple – it involves selling products through a network of independent distributors. Members sell products and recruit new people simultaneously. That’s how an MLM and MLM business grow and achieve its sales goals.
Pyramid-like hierarchy: Identifying the tiers of participants
As explained above, MLM employs a network of people. These members are arranged in a pyramid-like hierarchy. This hierarchy is crucial as it defines the amount of compensation the member will receive based on their position in the network.
Here’s how tiers are divided in MLM;
- Top Tier – It includes the founders.
- Recruiters or Distributors – These members are the one who joined early and has the longest downline.
- Participants – These include those who join the MLM network, sell products, and recruit others.
Emphasis on recruitment: The primary focus of MLM operations
It might be apparent to you that MLM business primarily emphasizes recruiting new members to power MLM operations. These members expand the network and derive sales. However, the heavy focus on recruitment gives way to scams, which we will understand in the coming sections.
Red Flags: Recognizing an MLM Scam
You know the workings of the MLM model; now it’s time to identify the red flags that can help you avoid MLM scams;
- Too Much Emphasis on Recruitment – If an MLM offers excessively talk about recruiting others for a fee, it’s likely a scam.
- Nothing to Sell – Look for the products. If there are none or low-value but fancy-sounding products, beware, it’s a scam.
- High Startup Cost – If a company asks you for a considerable sum to join the program, be cautious, it could be a fraudulent offer.
- Promise of High Return in Short Interval – It’s perhaps the biggest lure of MLM scams. If a company offers significant returns in a short interval with minimal effort, it’s almost certainly a scam.
- No Details of Retail Sales – Business makes money with sales. If a company can’t reveal its sales figure, it’s a big sign of a scam.
- Inflated Income Claims – Be skeptical if a company showcases unfathomable income with little evidence. Their sole purpose is to entice users into joining the program.
- Complex Commission Structure – If you can’t make head or tail of how you will be compensated for your efforts, it’s better to stay away from the offers.
Empowerment through Research
If you stumble upon any MLM offer that promises significant gains, it’s essential that you thoroughly research it. It’s the surest way to ensure that you are not scammed.
Investigate the company’s history and reputation
It’s perhaps the most important step before onboarding any business opportunity or offer. Before you accept any MLM offer, it’s vital to check the company’s background. Nowadays, it’s pretty easy – one search on Google reveals a lot about a company. Investigate its founders, any significant milestone, and testimonials of existing customers. You can also search on forums to learn about people’s opinions about particular MLM companies.
Scrutinize the product or service
The next critical thing to do is to scrutinize the products or services of the concerned MLM company. Understand that product sales form the core revenue model for any company. If it doesn’t have a quality product or service, it’s a big red flag right there.
Legal and regulatory considerations
Companies’ registration with appropriate legal authorities gives them credibility. Therefore, before accepting the offer of any MLM company, research its legal standing. Most importantly, check for any lawsuit, regulatory violation, or legal action the company faces. Also, verify that the company adheres to all the legal rules for MLM in your region.
Promoting Ethical Entrepreneurship
Now that you know how to identify MLM scams, it’s essential that you understand one more aspect, which is promoting ethical entrepreneurship. It fosters transparency and fair practices. Consequently, more people are saved from MLM scams.
Here’s how you can do that;
Highlight genuine business opportunities
If you can identify genuine business opportunities, share them with others too. You must encourage people to join ventures that focus on quality products, care for their members, and believe in reasonable compensation. This way, you can enlighten others to follow the path to success and avoid pitfalls.
Advocate for community education
Once you are adept at identifying potential scams, you must educate others about the same. You must inform people how to spot legitimate business opportunities and avoid scams. You can host workshops, webinars, or events to inform others about recognizing red flags in MLM business.
That’s all you can do to identify and avoid potential MLM scams. We sincerely hope you now understand how to differentiate between real and fake MLM offers. Likewise, it’s essential to share the knowledge with others, too, in order to save them from falling victim to MLM fraud. Through the collective efforts of all, we can send a strong message to scammers that we understand your tactics, are vigilant, and won’t fall for your trap. And, slowly but surely, the business landscape will become more transparent.