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Work at Home Scam Alert: Pyramid Scheme or MLM What's the Difference?
By Shelley Lockwood
You've got two choices.....
Short and to the point or the lengthy explanation.
To the point: One is illegal (Pyramid scheme) the other (Multi-Level Marketing) for the most part is just barely legal. Many MLM programs are simply a pyramid scheme with a twist. The twist? Constantly tweaking it to stay on the right side of the law.
Both are high risk and costly business endeavors.
On to the explanation.....
Warning signs of a Pyramid Scheme:
You have to pay to join
Money is made by recruiting
Required to buy expensive inventory
Emphasis on recruiting others instead of selling
Promises of high profits or "miracle" products
It's difficult to differentiate between multilevel marketing and pyramids. Especially because a pyramid is multi-level marketing based.
The focal point of pyramids is recruiting. You pay to join and you make money from people joining. There is no real product being sold outside of the program.
The intention of Multilevel marketing is to earn commissions by selling a product or service. They are referred to as multilevel because they also pay you commissions for sales made by people that you recruit into the plan.
Pyramid schemes involve deception & misrepresentation and are illegal in many places. States outlawing pyramids specify that a certain percentage of product sales must occur outside of the program.
Be wary, many pyramid schemes are disguised as mlm ops. They offer products for sale but if you look closely you'll see that the products are being sold only to other members of the pyramid.
For example, they pressure members into purchasing expensive start-up or marketing kits.
Eventually the pyramid fails when no new members are being recruited, the scheme is shut down for fraud or the top dog takes off with the money. When this happens most people in the program lose their money. Only the choice few at the top walk away having profited.
Something that many people don't realize is that they can be held legally responsible for "promises" they are making. It doesn't matter if you are only repeating what you were told. This applies to product performance as well potential earning claims.
If you're contemplating multi-level marketing (or if you're already involved) make sure your statements are fact based and can be backed up.
Diligently research the company and the opportunity before you join. Don't be pressured into a decision.
In the search for legitimate ways to make extra money I've accidentally run into a couple of multi-level marketing schemes. Well..the same one twice. They did such an amazing job marketing the "Online Business Systems" that I had no idea it was multi-level marketing. I thought it was some new tool for developing a business on the net.
Twice now I've purchased "decision packs" from websites. About two years had lapsed in between. In that time their marketing had improved tremendously. To the point that even after having reviewed the second decision pack I still didn't know it was a multi-level marketing opportunity. Better yet for the same program.
I realize now that the website was designed to get my contact information. It never once mentioned exactly what the business was, what the products were or which Company. The decision pack was an impressive brochure full of testimonials about how great it is to be rich. Quoting some market trends like babyboomers, health & wellness but still nothing about the business or products. A CD, a DVD & a VHS all of the same presentation. Which really wasn't a presentation more of an info-mercial with rich people sitting around talking about how the "System" changed their lives.
It wasn't until I was an hour in to their follow up conference call that a little bell went off; Herbalife. I asked the question "What percentage of overall product volume is sold to consumers rather than to program participants?" Dead air for a second then the more seasoned coach piped in something about the legal minimum being respected. Nobody could give me a number though.
Three people were in on that call. Not one of them could give me any solid product sales advice. They focused mainly on recruiting. They did know of at least one person who concentrated on sales. The suggested split; 80% on recruiting and 20% on sales.
$100.00 for the website + $50.00/month hosting + $299.00 to get started. They'd throw in a couple samples for my personal use.
Then I remembered why I didn't sign up last time. It wasn't even those amounts. So I asked "what percentage do I make on my recruits' sales?" The lengthy explanation started. I interrupted and told them I hadn't signed up last time (two years earlier) because I was able to figure out that I wouldn't actually make anything off of my recruits until I made supervisor (or whatever it's called). Turns out that's still the case.
I would need to purchase 4000 points worth of product (about $4000.00 why they don't just say dollars, I don't know) before I ever saw any percentage of sales made by my recruits or I could just invest that up-front. Believe me it's like pulling teeth to get that information. I could make a low mark-up (profit) on my own sales, but would need to achieve that position to get a decent margin.
There's just something wrong with an opportunity that suggests 80% effort on recruiting. Aren't they supposed to be in the business of selling product to consumers? Just how honest is it having people recruit distributors they won't benefit from without another $4000.00 investment. Why would I have to spend anything at all for the right to sell their products?
In the end I was finally able to ascertain that as long as someone is not a supervisor commissions from their recruits' sales go to the team leader who of course is a supervisor.
Too much deception & misrepresentation as far as I'm concerned. Since then I've checked the number of complaints against Herbalife and some distributors. One FTC report alone sites 97 complaints. They are definitely on the Federal Trade Commission's radar screen.
I didn't bother to request my $39.95 refund for the decisions pack. I felt bad for my would be recruiter. She seemed pretty honest and I think that call opened her eyes to a few truths.
If you are interested in getting involved in a multi level marketing program, use the MLM Checklist for some helpful guidelines.
Always, take time to think things through before moving ahead.
Take care,
Shelley
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