If you have ever thought about becoming a distributor for a direct sales or multi-level marketing company to make a little extra money or build a business on your own, you’re not alone.
Most of us at some point have been approached and/or have been involved with a multi-level marketing operation, either as a customer or distributor/agent. Multi-level marketing is legal, but there is a fine line between these businesses and illegal pyramid or Ponzi schemes. The Better Business Bureau serving Central East Texas advises people to know the difference before they become involved with multi-level marketing.
Do your research before you engage with a multi-level marketing opportunity. If the company promises high pay for little effort and little experience, it’s best to steer clear.
Multi-Level Marketing: With multi-level marketing, your income is based on the actual product sales. This can include both your direct sales and the people on your team.
Pyramid scheme: With a pyramid scheme, your income is based on the people you recruit to your team.
Ponzi scheme: A Ponzi scheme typically involves some type of fake investment opportunity. People invest money through a “trusted” individual who touts fantastic returns with little or no risk of loss.
The BBB recommends that people consider some things before joining a multi-level marketing operation:
- Research the company. Look into the company’s track record and reputation. Go to bbb.org for a business profile that includes any complaints and customer reviews. Do an internet search with the name of the company and words like scam or complaint.
- Understand the plan. Make sure you are clear on all terms and conditions of the plan, including pay and expenses. Remember that as you recruit other distributors, you are responsible for any claims you make about how much money they can earn, so be sure any claims are backed up with evidence.
- Get all information in writing. Request any contracts, pay plan information and expenses you will pay in writing.
- Be aware of minimum requirements. Some businesses require distributors to sell a certain amount of product each month or quarterly. If you don’t sell the required amount, some businesses will terminate your contract.
- Interview. Contact someone who has been successful with the company and ask them questions such as how many people are on their team and what kind of training is provided. Also, how long have they been in the business, how much money did they make last year and what was their business expenses last year.
Also ask how much product they sold to customers and how much to distributors, and what percentage of the money they made come from recruiting other distributors and selling them inventory or other items to get started.
Red flags of a questionable multi-level marketing opportunity include:
- Promises of high earnings, especially with little effort, time or serious commitment.
- Requirement to purchase a large amount of inventory to start, with no written guarantee that unsold products will be bought back for a certain percentage of the original price.
- Request for payment in cash, via wire transfer, or money order for initial investment.
For more tips on how to be a savvy consumer, go to bbb.org. To report fraudulent activity or unscrupulous business practices, call the BBB Hotline: 903-581-8373 or report it via BBB ScamTracker.