If you’re considering joining an MLM, know that some MLMs — even ones that aren’t pyramid schemes — may not be a wise investment. Other MLMs may not be a good fit for your interests and lifestyle. Here are some tips to help protect yourself against a bad MLM experience.
Ask yourself these questions
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Do you want to be a salesperson? If you join an MLM, you’ll be a salesperson. Your job will be to sell the company’s product and, in many cases, to convince other people to join, invest, and sell. If you don’t like selling, or if you’re uncomfortable asking people you know to put their time and money into a business venture, joining an MLM is a bad idea.
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Do you have a solid sales plan? Consider whether you have friends and family who will buy this product from you over and over again. Think about how you would find and keep other regular customers. Can people buy something like this product elsewhere, maybe for less?
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What are your income goals? You might think that, with your willingness to work hard, you can earn substantial income through the MLM. In fact, most people who join MLMs and work hard make little or no money, and some of them lose money.
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Can you afford to risk the money and time? Every business venture has risks. MLMs are no different. Even if the start-up costs seem low, additional expenses can add up quickly. Expenses can include training and travel costs, website fees, promotional materials, costs to host parties, and costs to buy products. If you need to borrow money or use your credit card to finance your expenses, you may face hefty interest charges too. Also, consider the time demands of the business, like going to training, recruiting new distributors, managing paperwork, recording inventory, and shipping products.
Do your homework
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Research the company. Search online for the name of the company and words like “review,” “scam,” or “complaint.” You may also want to look for articles about the company in newspapers, magazines, or online. Does the company have a good reputation for customer satisfaction? Check with your state attorney general for complaints. A lack of complaints doesn’t guarantee that a company is legitimate, but complaints can tip you off to possible problems.
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Research what distributors are saying. Individual distributors often post their own training videos online to promote the MLM. Search for these materials. Be suspicious if the trainings make earnings claims, tell you that the fastest way to make money is to “recruit, recruit, recruit,” or suggest that all you need to do to build a downline is “find two people who find two people.” Claims like these are hallmarks of a pyramid scheme.
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Consider the products. MLM companies may sell quality items at competitive prices. But some offer goods that are overpriced, have questionable benefits, or are downright unsafe to use. For example, be very skeptical about health products advertised as having “miracle” ingredients or guaranteed results. Those claims are generally false or at least unproven and, at worst, the products could be dangerous.
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Understand the costs. Many MLMs make you buy training or marketing materials, or pay for seminars on building your business. You may need to book travel and pay for hotels and meals. Make sure you know what you must pay for, and how much it will cost over time. If the company says some of these things — like periodic product purchases or training — are optional, find out if you’ll become ineligible for bonuses or rewards if you opt out of them.
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Ask about refunds. In many MLMs, before you can start selling the products, you have to buy them from the company. So get the company’s refund policy in writing. Make sure it includes information about returning any unused products, including restrictions and penalties. Consider whether you’ll get a full refund or only a partial one — and how long it may take.
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Read the paperwork and have a friend or advisor review it. Read the company’s sales literature, business plan, disclosure documents, and any contracts or agreements you’ll need to sign. Ask an accountant, a lawyer, or someone else you trust — and who is not affiliated with the company — to help you review the MLM’s materials. Ask them to look at your possible earnings and whether the company can back up its claims about how much money you can make. Ask for their honest opinion about whether they think the MLM is legitimate and a good fit for you.
Talk with current and past distributors about their experience in the MLM
Ask tough questions and dig for details. Don’t consider it nosy or intrusive. You’re thinking about starting a small business. A good businessperson needs those answers. Here are some questions to ask:
- How long have you been in the MLM?
- How much money did you make last year, after expenses?
- What were your expenses last year?
- Have you borrowed money or used your credit card to fund your business? How much did you borrow? How much do you owe?
- Do you need to have recruits to make money?
- How many people have you recruited? How many did you recruit last year?
- How many of your recruits have left the business?
- What percentage of the money you made came from selling the product to customers outside the MLM?
- What percentage of the money you made — income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?
- How much time do you spend on the business?
- How much inventory did you buy from the MLM last year? Did you sell all of your inventory?
Remember, you’re on a mission to check out a potential business deal that will require your time and money. The information you learn can help you decide whether it’s really a deal, a dud, or straight up illegal.