Multilevel marketing can be a great way to break into the business world without tremendous upfront costs or experience. Many people find MLM allows them to earn income while still having time for other concerns, such as a family or even another job. But while there are so many great, legitimate MLM companies out there, there are many scams looking to take your time and money as well. These scams are referred to as Ponzi schemes. Unlike an MLM where to goal is to move product and spread the wealth among contributors, Ponzi schemes only look to take your money and use your drive to recruit more unsuspecting victims willing to pay into their pockets.
It can be difficult to tell what is a legitimate MLM or a Ponzi, especially if you are just breaking into the business. To help, we have compiled several key points that you should consider when trying to decide if a business is legitimate or merely looking to steal your hard-earned money. In addition to these tips, remember you can always research the business: other people’s thoughts are invaluable in distinguishing authenticity.
It might be a Ponzi if: you have a large start-up cost, often disguised as a product charge or inventory fee. A true MLM does require some investment, but it will never be too large to handle and will go directly to buying product (and not merely the ‘right’ to be a distributor).
Market for Products/Services
It might be a Ponzi if: there is no real demand for the product or service you would be selling. If the company does not have an established market (or is working on one), that is a red flag. Legitimate MLMs have target consumers and know the market they are trying to appeal to.
Recruitment vs. Sales
It might be a Ponzi if: recruiting new members is prioritized over actually moving product or selling services. Ponzi schemes rely on tons of unsuspecting people to pay into their pockets while offering little to no reward. MLMs focus primarily on sales and won’t pressure you to constantly recruit new members.
It might be a Ponzi if: the company has no interest or intention of buying back the unsold product. They will try to make excuses about how buy-backs will hurt the company, but the reality is they don’t want to part with the money they have weaseled out of unsuspecting people. MLMs will typically buy back unsold stock for around 80% of the cost.
Emphasis on Earning
It might be a Ponzi if: there is the ‘potential’ to earn more money by recruiting new members rather than selling product/services. Ponzi schemes will try to make recruiting new members seem favorable by offering commission or bonuses for each recruitment while offering little incentive to make real sales. An MLM will always focus on sales before all else.
By following the points above, you will be able to better protect yourself from being taken advantage of by a Ponzi. Remember: research is key and if it ever seems too good to be true… it probably is!
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