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Multi-LevelMarketingvs.PyramidSchemes:WhatYouNeedToKnow

Jodi Hill
Jodi Hill Influencer
over 1 year Pittsburgh, PA, United States Story
Multi-Level Marketing vs. Pyramid Schemes: What You Need To Know

There are so many new multi-level marketing companies popping up all over the place these days promising huge profits, free products and creating your own work schedule and hours.  They sound promising with great wealth, and living the “life of your dreams”.   Having invested in a few MLM home-based businesses myself, I have some advice for those thinking about getting into MLM businesses, and yes, they can be a great investment if you have the time and passion to put in the demanding work.  Personally, now, I do not have the time to invest, however, my eyes are always open for a fantastic opportunity and I’ve learned a few things along the way by having already invested time and money into this genre of home-based business. 

First, let’s look at one of the biggest fears people have about investing in an MLM home-based business.  Multi-level marketing businesses are just that, they are businesses.  You ARE a small business owner when you buy into an MLM company such as Mary Kay, ARIIX, Limelight-by Alcone, It Works!, and 100s more.  Expenses, such as utilities, a percentage of your mortgage or rent, your cable bill, food, cleaning products, carpet cleaning, internet and phone bills, supplies, gas, hotels, rental cars, trips to see grandma at Thanksgiving if you can squeeze in meeting clients, or a potential new distributor or recruit, can possibly all be written off on your income taxes from your home-based business.  Taking people out to dinner, for coffee, drinks, or if you attend a benefit or a charity event, could possibly be a write-off for you as well.  If you go on vacation and you take your laptop and do some work, network, take client orders, etc., that can possibly be a write-off for your business also.  (ALWAYS check with your tax professional regarding your individual business, expenses, etc.)

Unfortunately, many people who are approached to become a home-based MLM business owner turn it down due to the fear that they are being scammed or conned into investing in a bogus pyramid scheme.  Do pyramid schemes exist?  Absolutely.  Do you need to do your due diligence if you are thinking of getting into an MLM?  Of course.  The good news is that the companies listed above do not fall under the category of a pyramid scheme, along with many others.  The sad news is that I see so many consultants, promoters, distributors, etc., failing to adequately defend their businesses against being called a pyramid scheme or scam.  Many do not understand the difference between an MLM and a pyramid structured company, and thus cannot effectively communicate to the public exactly WHAT a pyramid scheme is, and HOW one can avoid getting ripped off by investing in one.  To meritoriously defend your MLM business against any skeptics, you must know what they are, how they work, and how to simply explain the differences to your potential recruits as well as training existing recruits how to explain the difference to their potential downline. 

What is a pyramid scheme?

According to the Federal Trade Commission, “… they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public.”  (https://www.ftc.gov/public-statements/1998/05/pyramid-schemes).  In other words, pyramid schemes do NOT offer an actual product or service and pulls investors in by guaranteeing unusually high returns.  Meaning, any profits will NOT come from legitimate investments or the sale of products or services.  Profits will be based solely on recruiting by promising rapid financial wealth gained without having to sell a product or service.  If you are getting promised 1000s of dollars a month in profit in just the first few months of being in the company, be wary as this could be a red flag.  Although this doesn’t necessarily mean that the company is a scam, it may point to unrealistic, illegal, or unfair compensation packages.  Multi-Level Marketing companies can be lucrative, but you must do your research before you invest in an MLM home-based business. 

Do your homework.

Things you should consider first…when you see consultants, promoters, or distributors posting photos of pricey foreign cars, million-dollar homes, lavish vacations, etc., you’re first instinct might be to roll your eyes and think “yeah…right!”  Don’t be such a skeptic.  It may very well be accurate.  Also, keep in mind that it took that distributor many years to earn enough money to acquire those assets unless they are a multi-income household.  Many people invest in these businesses with the PROMISE of making a 1000s of dollars with little to no effort in a very short period and that just isn’t realistic. Example: you see a post of a struggling, single mom standing in the driveway of her brand-new $1,000,000.00 home with a brand-new Range Rover she earned from working her business.  Is it possible? Yes.  Is it going to happen in 1-5 years?  No.  Not unless you got into that MLM company at the inception and launch and you are one of the first few hundred or so recruits then it is possible to make that kind of income much faster.  Does that mean that it WON’T happen for you?  NO!!  Anything is possible if you work hard, know your products, know your why and your outcome, and have a genuine passion for the product or service that you’re providing to consumers.  You must also understand people.    It WILL take a lot of work.  It WILL take time.  It WILL force you to learn to handle rejection.  You WILL hear “thank you, but no thank you” more times than you will hear “sure, sign me up” and you will get a lot of distributors under you who will drop out of your downline.  This is the reality of MLM, but if you have enough time on your hands, it could be well worth the effort.

Now for the hard part.  Don’t invest in an MLM unless you’re passionate about the product AND you have the TIME to put into it.

You can be the most energetic, outgoing, positive, motivational, upbeat person on the planet and still fall flat on your face when it comes to MLM. It has nothing to do with your sales or marketing skills.  It has nothing to do with your popularity.  It has nothing to do with how many social media friends or followers you have.  It doesn’t even have to do with how much promote your business on social media since generally, only about 1% to 3% of your recruitment and sales will come directly from social media, it comes from word of mouth.  That being said; it does, however, have EVERYTHING to do with product knowledge, how much you LOVE your products, and understanding your client’s basic desires.  It does have to do with your priorities and where they fall, and it does have to do with your passion.  If you are not extremely passionate about your products and you don’t understand your clients, it will show.  You must come from a place of personal experience and results, not simply by re-posting what the MLM Companies’ marketing teams told you to post by what they put on the companies’ “approved” marketing material.  You won’t come across as a passionate promoter for your product if you don’t love it yourself and know every aspect inside and out.  If you aren’t’ knowledgeable about the products, then you better at least know where to find the information to answer customer questions.

Next, if you are considering investing in an MLM company, do your homework and find a product that fits YOU, and one that has an initial investment that you can comfortably invest in.  If you aren’t a person who wears makeup, don’t invest in an MLM business that primarily sells make-up.  If you aren’t a personal trainer or the type of person that works out a lot, don’t invest in a company that sells protein powders and recovery drinks to people that work out.  You are a walking billboard for your business, so your clients are going to want to see your “before and after” and hear your story.  Don’t invest in a company just because they tell you “it’s only” $100.00 to sign up”, or “it’s free to open an account” and “you can make that back in a week or less” if you’re not actually using the products themselves, you won’t get passionate about what you do and the products you sell.  Do not invest in an MLM when you’re bank account is in the red.  Don’t fall into the pressure of investing by being told you’re “too smart to live paycheck to paycheck”, or that you’ll make all your initial investment back rapidly.   If you don’t have the money to invest at that time, then wait until you do.  I’ve heard “borrow the money, you can pay them back quickly OR get them to sign up beneath you.”  It’s not that these recruiters are scamming you, but keep in mind that they make their income by becoming your “upline”, and the sooner they sign people up the quicker they make money and so will you if you recruit quickly.  Your success will greatly depend on your passion, knowledge, and a lot of challenging work. 

Where can you go to get more information on MLM home-based businesses? 

As I stated earlier, do your due diligence.  Research any opportunity you may be considering.  Find out all you can about their products or services and which one best fits your budget, lifestyle, needs, and passion.  Once you decide that you want to take the plunge and start your own business, check out their compensation structure, bonuses, prizes, trips, seminar requirements, etc.  Below are some links to resources you may find helpful.  Check them out before you invest your time and money. 

https://www.consumer.ftc.gov/blog/2014/05/telltale-signs-pyramid-scheme

https://www.ftc.gov/public-statements/1998/05/pyramid-schemes

https://www.bbb.org/phoenix/news-events/consumer-tips/2015/03/opportunity-or-scam-multi-level-marketing-vs.-pyramid-schemes/

https://www.bbb.org/phoenix/news-events/consumer-tips/2015/03/opportunity-or-scam-multi-level-marketing-vs.-pyramid-schemes/


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Jodi Hill
Influencer

I am a writer and also a contributor for Influencing Entrepreneur Magazine. I am, and have been, a small business owner since 2008 striving to help those job seekers who need to amp up their pre-employment documents such as Cover Letters and Resumes, provide interview tips and tricks, interview [...]

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