There are a set of five characteristics below that I found to be exclusive to recruiting MLMs (which are almost all MLMs today). Based on careful analysis of available data, MLM programs with these characteristics have a shocking loss rate - approximately 99.9% of ALL participants lose money (after subtracting ALL expenses)! - not a legitimate business by any reasonable measure.
In the light of these odds, typical promises made by MLM promoters of lucrative incomes are misleading, except for a few at the top of the pyramid who got in early. Again, it is important to recognize that - These 5 characteristics are causal because they identify the cause of the harm or consumer losses.They are defining because they clearly separate what I call "recruiting MLMs" or product-based pyramid schemes from all other forms of commercial activity. And they are legally significant because they answer the question that law enforcement has not consistently answered in cases before; i.e., how the primary emphasis on income from recruiting (as opposed to selling direct to consumers at retail prices) can be determined from the reward system (compensation plan) - rather than from complaints, which simply are too unreliable in this field of activity.
It is the synergistic effects of these five features working together in an MLM that cause the extraordinary loss rates characteristic of these schemes. One should be wary of any MLM program that has even four out of five in their compensation and marketing plan. Interestingly, most of the laws that might implicate MLMs as pyramid schemes are based on one or more effects of the scheme (such as whether or not sales are made to end users, not just participants) and not the essential causes of the problems.
1. Recruiting of participants is unlimited in an endless chain of empowered and motivated recruiters recruiting recruiters - ad infinitum
Ask: "Is unlimited recruiting allowed, and are those who are recruited empowered and spurred on by incentives (such as overrides from downline purchases, advancement, etc.) to recruit additional recruiters, who are likewise empowered and motivated to recruit still more recruiters, etc. - so that the effect is an endless chain of recruiters recruiting recruiters?" This leads to a perception that a given market is saturated ("de facto saturation"), and the program must move on to another location or introduce new products or divisions to continue. The opportunity for each new person to make money becomes less and less as this endless chain or pyramid of participants continues to expand.
2. Advancement in a hierarchy of multiple levels of "distributors" is achieved by recruitment, rather than by appointment.
Ask: "Does a 'participating distributor' advance his/her position (and potential income) in a hierarchy of multiple levels of 'distributors' under him/her, who in turn advance by recruiting "distributors" under them, etc.?" the result is self-appointment through recruitment to ascending payout levels in the distributor hierarchy. If the only way a person can profit significantly in the scheme is through recruiting to advance to higher payout levels (or to buy another's downline), this strongly suggests a pyramid scheme.
3."Pay to play" requirements are satisfied by ongoing "incentivized purchases**."
Ask: "Are 'distributors' encouraged to make significant purchases when recruited? That is, are they encouraged to make sizable investments in 'incentivized purchases' in order to take advantage of the 'business opportunity,' and later to continue qualifying for advancement in - or overrides from - the MLM company?" Watch out for minimum quantity purchases of products or services over time - where you must "pay to play" the game - to qualify for commissions or advancement. Be wary when you are asked to sign up for continuing product purchases on auto-ship through an automatic bank draft, rather than making occasional purchases as needed. Such "pay to play" or "incentivized"** purchase requirements may be disguised investments in a product-based pyramid scheme, or a clever system of laundering pyramid investments in the form of product purchases. Few make sufficient commissions to cover the cost of these expenses, to say nothing of significant operating expenses necessary to conduct a successful recruitment campaign.
4. Company payout per sale for the person actually selling the product is less than the total of all upline participants, creating inadequate incentive to retail and excessive incentive to recruit - and an extreme concentration of income at the top.
Ask: "Would a 'distributor' purchasing products 'for resale' receive less in total payout (in commissions, bonuses, etc.) from the MLM company as the total of all upline participants who had little or nothing to do with the sale?" If so, the company's payments to the person retailing the product would be pitifully small, while those at the top in his upline can compound the small commission per sale by the sales of hundreds or even thousands of downline distributors. This is great for that upline person, but lousy for those attempting retail sales. Avoid any MLM company that pays less than half of all distributor payout to the person actually selling products to customers outside the network of distributors.
You should not accept income projections of retail sales at full retail prices, especially for products that are overpriced and not competitive in the marketplace. Also be wary when an MLM promoter asks you to choose between two options or "tracks" - one for those who want to "retail" the products and another track for those who are serious about "building the business." If the incentives are heavily weighted towards recruiting, this is a moot question.
5. The company pays commissions and/or bonuses to more than
five levels of "distributors."
Ask: "Does the company pay overrides (commissions and bonuses) to distributors in a hierarchy of more levels than are functionally justified; i.e., more than five levels?" Even in major corporations, the entire world marketplace can be covered in five levels of sales management - branch, district, regional, national, and international sales managers. Paying commissions and bonuses on more than five levels in an MLM program primarily enriches those at the top at the expense of those at the bottom. You would be wise to avoid any program that pays overrides on more than five levels. Breakaway compensation systems are particularly exploitive, as payments are on a hierarchy of "breakaway" organizations of whole groups of participants, not just individuals - creating an extraordinarily high loss rate, except for those at the top of a "mega-pyramid of pyramids."
IMPORTANT NOTE: While no one of these red flags by itself constitutes an exploitive pyramid scheme, taken together they create enormous leverage, enriching those at the top of the pyramid at the expense of a huge downline of unwitting victims of the scheme. Where valid data has become available, recent research has led to the remarkable finding that when all five (or at least the first four) of these red flags are found in an MLM, the percentage of all participants who lose money after expenses is approximately 99.9% - far worse than the 87.5-93.3% loss rate for classic, no-product pyramid schemes and for many games of chance in Las Vegas. You will likely do better selling pencils on a street corner.
Of course there are always exceptions to the rule right? So now you know what to look out for. If what you are looking for has 4 out of the 5 warnings, I would seeriously think twice and make sure you due your due dilegence.
So you want to work from home, but do not want to get caught up in a "scam"...what do you look for?
1. In short, look for the ability for anyone to make more money than anyone else. In any MLM, one gets paid a percentage of what people below them sells as well as what they sell. This typically goes to levels 5-7. With no ability to make more than the person who brought them into the business. A company that has a structure to pay the last person as much or more than the people above him has the right and moral way of doing business. It would be structured as to reward people for there hard work, not the CEO and "first in".
2. Look for the product to get sold to an end user (not in the business).This is law! There must be an end user that the product finds. A percentage is needed to be sold this way and not just to distributors. Not to say that distributors can not use their own products. Companies that are more successful with sales versus growing the distributorship is also a must.
3. Look for an amazing training system that doesn't cost you big money to utilize. ou should not have to buy books or other training materials i.e. websites, newletters, conference calls or webinars. Tickets to a conference or big meeting are expected expense as the venue must be paid for. These tickets should not be excessive in anyway. $50 for an all day affair or $300-400 for a weekend event are typical expenses so that the company is not making huge profeits at your expense.
4. Look for a business plan that has been working for a miniimum of 15 years. Time tried is essential. If a company is only a year old, chances are the government hasn't even looked into them yet. There are litrially thousands of new MLM's every year. 99% of them fail with-in the first 5 years. If a company hasbeen around for 15+ years, there are reasons for this; great products and a great business plan Note the plural use of product.
5. Look for constant growth and movement with the demands of the economy and peoples buying habits. If a company only has one product or product line, they are serious constant risk of losing everything as soon as the market demand changes...and so would your good fortune. If there was a MLM company only dealing with typewritters years ago, would they still be in business today? There are a few good exceptions to this rule such as make-up or weightloss products as those always tend to have strong mainstays.
6. Look for a company that has much more than 1 product or product line. The company that has a multitude of multi BILLION dollar industries to sell from is one that has the best position. (there are a few) They have the ability to withstand changes in the market.
7. Find a compnay who is not locked down to manufacturing a product. This is essential because as industry and demand changes, they can easily find a new company to make the newest greates thing virtually overnight. They do not have to worry about all the money rapped into buildings and machines or extra product.
8. Look for the availability to open multiple business' of the like kind. Meaning "multiple locations" just like owning a McDonalds and opening another one down the road. (but that cuts into your profitability) You must be able to place that second, third, fourth and so on, under yourself much like another person you would bring into your business. Unlimited re-entries is definetely a plus here!
9. Look for a business that pays everyone 100% comission without limits. This one is very hard to find, but is possible. Some pay 100%, but only to cetain levels. These types of payment structures pay big money to the CEO and "first in's"
10. Look for a BI-NOMIAL business plan instead of a MLM business plan. MLM business structures create competition amoung your own team! Much like a car dealership or insurance compnaies. Bi-nomial structures create encouragement and cheer. The more others below you succeed, the more you succeed.
11. And finally, be very weary of companies that have "breakawys"! If you do build a big money making machine and a breakawy happens, YOUR INCOME GETS TAKEN FROM YOU! You literally can go from tens of thousands a month to a few hundred a month...OVERNIGHT!
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