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Multi-Level Marketing: 10 Schemes to Watch Out For

Graphic of MLM

What are Multi-Level Marketing (MLM) schemes?

Multi-level marketing, or MLM is a system that depends solely on commissioned-based workers to sell their products or services and to recruit more workers to the company. It is a face-to-face sale and most MLM companies encourage workers to use their family or friends to buy their products or services or to be recruited as a worker. Marketing schemes usually rely on word-of-mouth marketing and relationship referrals. 

Workers only make a percentage of what they sell to customers or from the sales of the people they recruited. This is an incentive for workers to bring in more people, thus creating a pyramid scheme. The vast majority of salespeople in MLM companies lose money, yet MLM companies make people believe they can make a large return with hard work which is very improbable. These schemes are illegal yet there are multi-million dollar businesses that rely on these marketing tactics. 

text image of MLM

 

History of Multi-Level Marketing

But how did MLM schemes get started and how are they continuing today? Although there is some skepticism on what company was the first MLM scheme, most people would say Nutrilite was the first. Nutrilite is a California vitamin company founded in the 1920s and the compensation plan was considered an MLM scheme. Nutrilite offered additional pay to their distributors who brought in new distributors that made a sale. 

Two representatives of Nutrilite, Rich Devos and Jay Van Andel saw how well Nutrilite was doing and decided to make a new company called Amway. It successfully established itself as an MLM business by using the same pay plan. Despite this, according to the FTC Amway and its operations were not considered a pyramid scheme but a legitimate business. The only thing Amway was found guilty of was price fixing and exaggerating income claims, which they had to change soon after. This ruling of Amway not being guilty allowed a vast amount of companies to imitate how Amway was run. This started the MLM companies we know today and why many MLM businesses are still managing to run. 

 

Example of Nutrilite product

 

Ten Signs of MLM Schemes to Look Out For

1. The product is non-existent or it’s not of great quality.

One major sign of an MLM scheme is when there is a lack of quality in the product or there is no product at all. When the company is more focused on selling the product rather than focusing on the product itself, this is a sign it is a multi-level marketing scheme. 

An example of this is Monat, which is a hair care company. Many customers claim that the product causes balding, itchiness, hair loss, and scalp irritation. When a product has damaging effects and it is still being sold, that is a red flag.

2. Far-fetched claims that aren’t backed up by evidence about the product

This is common for health and wellness companies where they claim their product can cure or resolve the problems of their clients. Most of the time the problems they claim they can resolve are very improbable and seem too good to be true. It’s important to be cautious of this because it can be easy to fall victim to their claims. 

An example of this is a company called “It Works”, an ironic name since it makes claims which cannot be made. The company is a weight loss supplement that states that it will minimize the appearance of cellulite, tighten loose skin and lose weight as quickly as 45 minutes. But these dietary supplements are not FDA approved, ultimately debunking any claims they make about their product.

3. High Stakes to Sell

It’s important to go for a company that has been established for many years and has a reputable name. More well-established companies will not have unrealistic sales standards, especially for new employees. An MLM scheme tends to force unattainable quotas and rely on you to make profits.

4. Encouraged to buy and stock products

All MLM businesses will have additional fees to get started. It’s best to watch out for fees that the business will make you pay when hired, such as buying products for your inventory which can lead to debt when you are unable to sell them. 

An example of this is LuLaRO, a women’s apparel multi-level marketing scheme. LuLaRO would force new employees to pay up to $6,000 of their products to begin working. This puts an immense amount of pressure on their new employees to sell all of their inventory. 

5. Lack of communication within the company

Companies should be very transparent when it comes to compensation, finances, and details about the business. When companies are hesitant about giving certain information, this should be alarming. You should be able to ask any questions to the company and be able to get a clear and truthful answer. 

6. Costly training or additional costs

Companies usually provide training for their employees or suggest additional training to pay for that’s not mandatory. When a company pressures you to pay for training, that is a sign it is an MLM scheme. Paying for training should not be a requirement for a job, especially if it needs to be consistent. Also, company expenses should be covered by the company and you should not be losing money when working. 

An example of this is the company Amway, which as mentioned before is one of the oldest multi-level marketing schemes. An employee of Amway spoke out about working there for two years. He lost around $10,000 on seminars, traveling, training, and more. He made less than $500 of sales and his only customer was his grandmother.

7. Poor Customer Service

Looking at the Business Bureau rating is important to see how legitimate a company is and whether or not it is an MLM scheme. You can see this through the Better Business Bureau website and how the company handles its criticism and complaints. When a business refuses to respond to any of their customer’s complaints or doesn’t try to resolve the customer’s problems, that is usually not a good sign. Good companies reach out and help their customers.

8. False Advertising

MLM reps tend to advertise their business as employment or a job but that is untrue. Multi-level marketing schemes aren’t steady jobs and there are no guarantees on salaries or income. When the job description seems too good to be true, it usually is. 

An example of this is Rodan + Fields, which is a skincare company. They tempt new hires with flexible hours, free vacations, and six-figure salaries — all of which are unrealistic and untrue. The majority of MLM salespeople lose money rather than earn a six-figure salary.

9. Sketchy Job Interview

Does the interviewer not care about your qualifications, give little detail on what the job is, not mention the name of the company, or emphasize how much money they will make? These are all signs of a multi-level marketing scheme. Reputable companies will not hide the name of their company and what the job consists of. The interviewer shouldn’t be trying to impress you to accept the job — it should be vice versa. Many popular MLM schemes have a recognizable name which is a way MLM reps gain new employees and dodge skeptics. 

An example of this is a cosmetic company called Younique. This is a multi-level marketing scheme where recruiters use a script given to them by the company to pitch to potential hirees. They promise many incentives that are unrealistic so they can make more money themselves by hiring new recruiters. 

10. Gut feeling

Trust your gut feeling. If a business seems suspicious, you’re probably right. Your intuition shouldn’t be ignored and scams can usually be uncovered by you.

Use these signs when applying for a job or being approached by a company. It’s important to not fall for an MLM scheme because, in the long run, you will just end up losing money. Multi-level marketing schemes are getting tougher and tougher to identify and it’s crucial to be wary of what jobs you accept in your career. 

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