Network Marketing Or Pyramid Scheme?

Often considered a road to riches, direct selling can lead to financial disaster without the proper research. Consider these tips before you sign up.

NETWORK MARKETING REALITY CHECK
Before listening to a sales pitch about a network marketing opportunity, use this guideline to help determine the legitimacy of a marketer’s claims and whether network marketing is the right move for you.

dsa_burstInvestigate the company. Once you set your goals, investigate the company that interests you. Find out if it’s a member of an industry association, such as the Direct Selling Association or the Multi-Level Marketing International Association. Also, contact the National Fraud Information Center. Nonmembership doesn’t mean your company of choice is a pyramid. Keep in mind, however, that organizations like these hold their members to a strong code of ethics and not only prohibit illegal scams but also provide tips and advice on how to spot and avoid them.

Check with the watchdogs. Call your local Better Business Bureau, consumer protection office, or other notable consumer agency to see if the company is in good standing or if any complaints have been filed against it. You can also obtain information about consumer complaints from the Federal Trade Commission, but you must make your request in writing. To see if any formal actions have been taken against a company, call your state attorney general’s office,” advises Leonard Clements, president of MarketWave Inc., a network marketing consulting and information company in Henderson, Nevada.

Verify taxes. To help verify financial claims, review tax forms from the last five years of the person trying to recruit you into the organization. If he or she refuses to hand over the returns, watch out. It may be an illegal scheme. Also be wary of any MLM with a “no-buy-back policy.” Legitimate companies that require inventory purchases will buy back unsold merchandise for at least 80% of what you paid, should you decide to quit the business. Some state laws require buy backs of at least 90% of the original cost.

Identify the product. The whole idea of network marketing is to use direct salespeople to sell products or services to the end consumer. So if no product or service exists, and only money is changing hands, head for the door. Pyramids often disguise themselves as reputable MLMs by taking on a line of products and claiming to sell them to consumers. However, little time and effort is spent actually marketing the products because profits come from recruitment. Ask what sort of marketing is allowed. If the company resists using viable ways to notify the public about its products or services, look out. You may be in pyramid territory.

Network marketing isn’t for everyone. To determine if it’s right for you, first weigh your goals, both personal and financial, and make sure they are realistic. For most people, direct selling is not a cash cow, so you most likely won’t make $1 million in just 18 months, working only 10 to 15 hours a week.

The bottom line is that people can and do make a decent living through MLMs, but it requires a lot of time, hard work, sales experience, and the proper disposition–and even then success is not guaranteed. Then one must do the proper homework to make sure they’re not being lured into an illegal pyramid scheme.

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