Tuesday, December 15, 2009

MLM Plans vs Pyramid Schemes

One of the reactions I often get from people when I bring up my Reliv MLM nutrition business is "Oh. Oh no. Steve! I thought you were smarter than that. You're not involved in one of THOSE!" "Those" being the pyramid scams that everyone knows MLM businesses to be. The idea that the MLM industry is a giant Ponzi scheme is deeply rooted and nourished by self-righteously ill-informed pundits, and unfortunately there are sufficient unscrupulous individuals and companies out there to lend credence to the belief. But is it really true?

A pyramid scheme is based upon paying returns to investors out of their own money or from money paid by subsequent investors, rather than from any actual profit earned. This is the crucial element, and we may as well admit that there are MLM businesses that follow that model. But that doesn't make the whole network marketing industry a pyramid scheme any more than phishing makes all internet marketing a deceptive scam. At its core, network marketing is simply another alternative for product distribution and sales. It relies upon layers of personal contacts to inform, sell and expand. The more extensive a network you can create, the more money you can potentially earn.

So how do you distinguish between a legitimate network marketing opportunity and a pyramid scheme? Its really not all that difficult. Consider the following:
  1. Avoid the "get rich quick" offers. A marketing network takes time and effort to build. You have to work, not just sit back and reap the rewards of having a big downline.
  2. If someone tells you that you have to "get in early" to build your business and make lots of money, watch out. A well run network marketing business built on a solid product allows you to get involved at any time.
  3. Beware of high fees to "buy in" to the business. If you are being asked to pay $100 or more for a "distributor kit" that is nothing more than a DVD and a few paper forms, or if your sponsor is making money when you sign up, look elsewhere.
  4. Avoid requirements to purchase a minimum amount of product every month. You may end up with a garage full of products you can't get rid of. If the product is good, and in demand, why is there a need to force you to buy it? (Hint: To help your upline make money.)
  5. Expect a money-back guarantee. Not just for your customers' product purchases but on your investment as well. If you discover 3 months into it that its not for you, you should be able to get a substantial portion (90%) of your investment refunded.
  6. Do your due diligence. You would not buy a franchise or business without working the numbers. Do the same for any MLM opportunity. No, not the numbers in the sales presentation. Check out the company. How long has it been in business? Is it the target of complaints or lawsuits? How does it earn its money?
  7. If anyone tells you this is not a sales job, or that the product "sells itself", thank them and walk away.
Certainly there are unethical MLM companies who prey on greed and naivete. The good news is that they tend not to last very long. True pyramids have a way of collapsing. There are also wonderful companies out there who have been in business 20+ years, have excellent products backed by ethical business practices and many happy, successful distributors. It you are considering a network marketing business, your first job is to recognize the difference. Every scam requires a willing victim. Don't let it be you.

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