A multilevel marketing plan (MLM), also known as network marketing, sells goods or services through distributors or consultants. The distributors receive commissions on sales of goods and the people they recruit. The distributor’s recruits become their “downline”. The more people they recruit who in turn recruit others- the more money they make through commissions. They are considered home-based businesses.
Difference between MLM and a pyramid scheme
Briefly, a MLM offers legitimate goods and services to it’s customers- pyramid schemes do not. .
In 1979, the Federal Trade Commission (FTC) made a ruling that affected all MLMs:
In re Amway Corp. (93 F.T.C. 618; full name In the Matter of Amway Corporation, Inc., et al.) The FTC ruled that Amway was not an illegal pyramid scheme but ordered Amway to cease price fixing and cease misrepresenting the apparent success achieved by the average distributor.
Although MLMs are legal, the FTC advises anyone thinking of signing up with a multilevel marketing organization to do their research first.
Multilevel Marketing Party
A Suzy Q Party just ended in a home in suburban Denver. Suzy Q is a multilevel marketing company that sells ladies lingerie. During the party, the distributor enthusiastically informs everyone that it’s easy to become a distributor for Suzy Q. A representative can work as little or as much as she wants and be a stay at home mom at the same time. On top of that, she’ll be making lots of money. The distributor’s enthusiasm is contagious. Some guests are hooked and want to hear more. The distributor schedules individual times with interested parties to go over Suzy Q’s business opportunity.
In the meantime, Gloria, a potential recruit, gets on the internet and does a little research on MLMs and pyramid schemes. She takes along a checklist to make sure this isn’t a pyramid scheme. It looks like this:
The start up cost for a legitimate MLM should be small. If the distributor pressures a recruit to pay a large sum of money for the privilege of getting in on the opportunity, she’s looking at a pyramid scheme. The promoters make all the money by recruiting– not selling.
If required to buy an inventory, will the company buy back the inventory should the recruit fail to make money? It should be at least 80%. Although some states require 90%.
Make sure a viable product is being sold. It must be something that people want to buy, and it must be of high quality. Companies that make their money solely on recruiting are pyramid schemes. Stay away or get stuck holding the goods.
Multilevel Marketing Checklist
-Find out who the officers of the Suzy Q company are. Check out its products, and buy back-policy.
-Get written copies of the company’s sales plan and any literature that’s available.-
-Make sure that the goods are actually being sold. That should be the main emphasis of the company: getting the goods to the consumer- not recruiting.
-Talk to others who have experience with the company. Their experience should be positive.
-Check with your local better business bureau, district attorney or state attorney general’s office.
-It looks like our hypothetical Suzy Q is a legitimate multilevel marketing company. Gloria decides to join them, but she reads the fine print first.
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