These days, who isn’t looking for a new business opportunity that promises high, sustainable profits? However, this way of thinking opens the door for fraudsters to get unsuspecting business seekers to participate in scams of all kinds. One scheme that continues to be popular is the pyramid scheme. These scams are scary and confusing to consumers because they are often disguised as Multilevel Marketing plans, or MLM’s.
What is a Multilevel Marketing Plan?
According to the Bureau of Consumer Protection, Multilevel Marketing plans are ways to sell goods and services through other distributors. These plans promise that if you sign up as a distributor, you will receive commissions from sales you make, as well as sales of the people you have recruited as your distributors, or your “down line”.
On the contrary, a Pyramid Scheme’s commissions are based on the number of distributors recruited, and the sales are made to these distributors, rather than consumers. There is usually a sign-up fee, and rarely is there an actual product or service. The FTC says “it is best to not get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to the people outside the plan who intend to use the products.”
Are you confused yet?
The difference between these two plans can seem unclear, but there is one key distinction – MLM’s are legitimate, and pyramid schemes are illegal. While doing research on the particular company you are thinking about going into business with is always your best tool to protect yourself, asking yourself these key questions may make it easier to determine whether or not you are at risk for being scammed:
1. Is the business focused more on distributor recruitment, rather than selling a product to consumers? Are profits made mainly by membership fees or bonuses as opposed to the sale of this product?
2. Does the product you have been recruited to sell seem too good to be true, and is it priced at an expensive rate?
3. Are there startup costs that include training materials, or are you required to invest a lot of money without receiving a valuable product?
4. Do you feel pressured to join, and is it difficult to reach anyone when you have questions about the business?
5. Are there promises of large profits for minimal work?
If you answered “yes” to any of these questions, you are potentially at risk for being involved with a Pyramid Scheme. While a Multilevel Marketing Plan can be a legitimate and exciting new venture, the bottom line is, do your research as you consider an MLM opportunity. It could be a Pyramid in disguise.
For more information about Multilevel Marketing Plans and Pyramid Schemes, visit BBB.org.