Recognize The 8 Warning Signs Of An MLM Scam

Recognize The 8 Warning Signs Of An MLM Scam

Network marketing offers you the opportunity to build a home-based business. But like any small business enterprise, it comes with its own unique risks.

So, while MLM scams certainly exist, the risks of being defrauded in a network marketing pyramid scheme are probably no worse than some of the franchise and investment club programs currently in the marketplace.

According to the National Federation of Independent Business Owners Education Foundation, over the lifetime of a small business, 39% are profitable, 30% break even, and 30% lose money. The statistics for network marketing are no different. And in fact, some people claim nearly 99% of all multi-level marketing (MLM) start-ups end with the home entrepreneur either losing money, or not making a significant profit.

The harsh reality of the risks associated with starting a small business is that most do not make money for their creators. While MLM opportunities may fail, the costs associated with these failures are generally significantly lower than those of failed retail stores and labor intensive service oriented businesses.

In my experience, marketers who load up on inventory to achieve illusory commission levels and to create the perception of high group volume account for the expensive failures in MLM. These failures are also usually associated with MLM scams that encourage heavy product purchases for personal use.

The more mundane failures in MLM can usually be attributed to marketers failing to generate sales revenue and focusing on recruitment goals over product sales goals. Distributors who do not achieve lofty recruitment goals within short time frames are also prone to quit—thus adding to the failure statistics and further discrediting the entire network marketing industry.

Inertia also plays a role in determining the potential for success or failure in network marketing. Like any endeavor in life, you generally get out of something what you are willing to put into it. This is especially true of network marketing, where your success is highly dependent upon your personal motivation to succeed.

Network marketers are human, thus it becomes exceedingly difficult to assess the causes of failure. If you are determined to get involved with MLM, “go for it.” Don’t be swayed by all the negativity you may hear about MLM scams and the plethora of “fake it until you make it” mantras.

That said, a little skepticism going in is prudent.

The Federal Trade Commission has also weighed in on this subject.

The FTC appears fairly neutral on the subject of network marketing, and is primarily interested in protecting the consumer from fraud. In network marketing, any plan that smacks of a pyramid scheme is frowned upon. To this end, the FTC recently published eight “warning” signs you should look for when evaluating an MLM opportunity.

• Avoid any plan that claims it will pay you to recruit, rather than sell products. It may be an illegal pyramid.




• Don’t load up on product inventory you may never be able to sell. Avoid companies that pressure you to “stock up.”




• Solid network marketing companies focus on sales revenue, not recruiting. Watch out for companies that emphasize recruiting while not suggesting that commissions are based on sales.




• Be suspicious of any outrageous income claims. Ask your sponsor to either provide proof of income, or withdraw his or her statement.


• Beware of testimonials. You don’t know these people, nor can you verify their veracity.


• Don't fall for the opportunity meeting sales pressure. Take your time and think about your commitment before joining. The opportunity will still be there tomorrow.


• Check out any plan you plan to join by searching for comments on the Internet. You can learn a lot about a company by reading forum and group message posts. Complaints on the net generally represent extreme cases and may be dramatized for affect. Use your judgment in assessing their unbiased worth.




• It takes hard work to succeed in network marketing. Don’t be fooled by any promises of instant success or automatic income.

Being aware of the 8 warning signs of potential MLM scams puts you a step ahead of the pack.
Use your judgment when joining a network marketing opportunity, and if you do join, give it everything you got. With perseverance, determination, and commitment, you may be able to be the next network marketing millionaire.