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MLM Scams: How to Spot, Avoid and Report Them

Almost everyone has been exposed to MLM scams at one point in their lives. Whether you were looking for a job after college or your friend tried to sell you some glass cleaner, you were probably exposed, too.

What are MLM scams, and how do you avoid them? Are they dangerous? If so, what’s the danger? Here’s what you need to know about MLM scams and how to steer clear.

What is Multi-Level Marketing?

MLM companies, or multi-level marketing companies, are generally offers of income, the amount of which is based on the number of people you recruit to a home business.

In other words, you’ll buy into a company, usually by purchasing inventory to sell. You then are tasked with selling that inventory, and a commission from those sales is promised to you. Yet another percentage is promised to the person who convinced you to join the business, and so on. As you recruit new sales staff, a commission from their sales will supposedly be credited to you.

Multi-level marketing scams promise unlimited income, and that income is usually based solely on the number of new associates you recruit. They’re also sometimes called pyramid schemes due to the “shape” of the pay structure, when charted.

Now, there are MLM businesses which actually do work, and representatives can be quite successful. Amway is one such company. Pampered Chef is another. And, by some standards, Avon and Mary Kay are multi-level marketing businesses. These companies sell real and valuable products to consumers, and the salespeople benefit from a MLM pay structure.

But there are many more MLM scams than there are legitimate companies. There are a few ways in which you can identify MLM scams. Read on to know how to differentiate MLM scams from real business opportunities.

Are MLM Companies Legitimate?

Do you have a social media profile? If you do, there’s a chance that you’ve seen many posts by your “friends,” trying to sell you one product or another. Every time you turn around, someone’s peddling their organic produce or designer handbag on your newsfeed.

Done right, sales can be quite a lucrative career. As recently as 2015, almost half of recent college grads could not find work related to their major. As a result, they entered sales-related positions. In addition to these displaced graduates, there has been a rise in the number of work at home mothers and fathers. Many of these join companies like Thirty-One and Thrive.

While you may grow tired of your so-called friends trying to sell things to you online, there’s nothing inherently wrong with these companies. They offer products for sale, regardless of quality, and the companies themselves have branded themselves so as to create a demand for their product.

Many people have had success in selling products with these companies, and have avoided falling into the trap of multi-level marketing scams. These entrepreneurs sell medical equipment, financial services, cosmetics, legal services and even toys with great success. Usually that success translates to a secondary income, but occasionally it can provide full time earnings.

How to Identify MLM Scams

With the increased interest in work from home opportunities, many businesses have chosen to present MLM scams to prospective “employees.” These scams, like the legitimate MLM companies, can sell a wide variety of products. From prepaid legal services to travel bookings, the product varies greatly.

MLM scams do, however, have a number of things in common. Here’s what to look out for, so as not to fall victim to MLM scams.

First, be sure that the company is offering you an opportunity to sell a real product. Many MLM scams will focus recruitment on the “opportunity” to earn your income by merely recruiting even more victims.

Secondly, never pay for a training program. Legitimate companies will provide training to you free of charge. Those which ask you to pay to teach you how to sell a product have simply found yet another way to earn money.

Thirdly, consider the commission structure of the MLM. Now imagine that you never recruited anyone to join the company “under” you. Would you still make money if you were to sell the products? If not, it’s an MLM scam.

Finally, be very wary of any “opportunity” which requires you to pay upfront. Membership fees and costly inventory purchases are almost sure signs of MLM scams. If you’re approached with any such opportunity, research it very carefully before making an investment.

How to Avoid MLM Scams

The absolute most important way to protect yourself from MLM scams is to use your intuition. As mentioned, there are many MLM businesses which have been in existence since as early as the 1970s. Some are a legitimate means of earning an income.

But if you’re faced with a new “opportunity” it’s critical that you use your best judgment. Do you feel like you’re being pressured to “invest” in the company? Do you feel like the person who is trying to recruit you is being heavy handed? Shady or vague?

Never take advantage of “limited time offers.” If the business is as successful as your recruiter claims, it will still exist tomorrow. Instead of pulling out your credit card, go home and research the company. Look at reviews, check the Better Business Bureau and look up the company with your state’s Attorney General’s office or the FTC.

There are legitimate multi-level marketing companies. But, if we’re being honest, that number is small. A majority of the MLM companies you’ll encounter are merely multi-level marketing scams, designed to cheat you out of your initial investment.

It’s admirable to have an entrepreneurial spirit. It’s natural to want a business opportunity which will afford you a healthy work-home balance. But while MLM opportunities do exist, it’s unlikely that you’ll build a great deal of wealth from them. There are countless other ways to earn money without holding down a 9-5 job. Our advice to you is to seek them out, and when you’re approached with an MLM “opportunity,” run far, far away.

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