The most feared and misconstrued home business startup option is network marketing or MLM (multilevel marketing). Direct sales, which includes network marketing and multi-level marketing, is a viable method to start a home business quickly and affordably. However, as in all aspects of life, there are swindlers, and it is your responsibility to conduct research and exercise caution when investigating an opportunity.
What Is Multi-Level Marketing?
Multi-level marketing, which is sometimes referred to as pyramid selling or a pyramid scheme, is a marketing strategy that employs a non-salaried workforce to promote products or services. Instead of selling products directly to consumers, they are presented as a business opportunity that purchasers can resell to another group of individuals on the same premise, and so on. MLM relies heavily on relationship referrals and word-of-mouth marketing.
Before starting a home-based business with a direct-sales company, make sure you can recognize these 10 red flags of an MLM scheme.
1. Absence of or Substandard Product or Service
There are numerous red flags that should warn you away from a business or investment opportunity, but the most significant is the absence of a product. Programs that prioritize recruiting over product sales may constitute a pyramid scheme. Consider it a red flag if a company isn’t interested in acquiring more consumers to purchase its products, but rather in “building a team” or recruiting sales representatives.
The foundation of any successful MLM enterprise is the delivery of products and services to end consumers. While building a team can be a part of this, revenue is based on the products sold by the team, not the recruiting process itself.
2. Extreme and Unsupported Product Claims
Representatives of health and wellness companies are most likely to make outlandish claims, claiming that their products cure diseases or perform marvels. In any industry, including direct sales, absurd claims are a red flag.
Quality products are the basis of a prosperous firm. Be wary if the company you’re considering joining sells unusual or seems too good to be true products. The last thing you want is for your name to be associated with a defective or litigated product.
3. Pressure-Based Sales Method
The most prevalent high-pressure tactic is the promise of early access. In direct sales, however, a good opportunity is an excellent opportunity regardless of when it is seized. In truth, it is safer to do business with a company that has existed for at least five years (the longer the better) than with a new company.
A representative who attempts to prevent you from researching the company, speaking with others, or “sleeping on it” is not someone with whom you want to work.
4. Pressure to purchase and stockpile
All MLM enterprises will incur startup expenses. It costs money to purchase a McDonald’s, and the same is true for direct sales, albeit at a much lower cost.
Watch out for “fast track” programs that charge a fee or inventory requirements that require additional investment. Due to this practice, the law now requires MLM companies to buy back their inventory, but you don’t want to be saddled with debt before you grasp the business thoroughly.1
Having a few popular products on hand can be beneficial, but you shouldn’t fill your garage with products unless you are certain you can sell them, based on your business experience.
5. Poor Organizational Communication
Do not fear asking difficult inquiries. Consider it a red flag if you receive vague responses or are reprimanded for not being a positive thinker or believing in the company.
To be successful in any enterprise, you must have solid support and training. The law requires MLM companies to provide you with a plethora of information, including information about the compensation plan and the average income earned by representatives.2 Examine this and pose queries. If the sales representative is reticent to answer your questions or glosses over your concerns, he is unfit to represent your company. A legitimate business wishes to keep you informed.
6. Expensive Continuing Education and Other Business Items
Some Amway representatives found themselves in hot water due to the sales of cassettes they created and sold. The majority of representative teams and companies offer gratis local and/or online training. There may be supplemental training (such as audio or video) available for purchase, but there should be no pressure to do so.
In addition, the majority of businesses host an annual convention that can be entertaining and educational but is costly to attend. Another red flag is if a company routinely compels you to pay for training.
7. Poor Better Business Bureau Rating
The BBB routinely assigns low ratings to home-based business opportunities based solely on the fact that they entail working from home, without any investigation. However, you can view any complaints and the company’s response to them. It is a positive sign if a company responds to and resolves customer service issues (every company in every industry will have customer service issues). If they do not respond or offer assistance, this is a red flag.
8. Fraudulent Marketing Practices
Some MLM representatives will describe their business as a “job” or use other terms to attract prospects. MLM is a business, not a profession. Any MLM representative promoting “employment” is dishonest and not someone you should work with.
Other deceptive (and frequently unlawful) practices include income guarantees and claim that you can earn money with minimal effort.
9. Obfuscated “Job” Interview
Representatives of Amway and other companies were criticized for luring individuals to a “meeting” to learn how they could “leverage time and money.” Many representatives and companies are aware that people are wary of MLM and have many misguided beliefs about it, so they use deception to get prospects to listen to their pitch.
In an effort to protect their brand, however, many legitimate companies prohibit their representatives from advertising their name. This practice necessitates that representatives find a method to entice individuals to learn more about them without mentioning the company’s name, which can appear suspicious.
The most essential thing to remember is to follow your instincts. Good representatives from legitimate companies that are prohibited from using a company name in promotions are typically able to provide some information about the company, including the company name, when speaking with you in person or over the phone, and make it obvious that they are representing a business. Anything else is suspicious.
10. Unsettling Feeling
Mindy Lilyquist, an expert on home-based businesses who were once defrauded by an MLM, stated that she immediately had a bad vibe about the company.
“From day one, I ignored the clearest indication that something was amiss – my gut,” she said. “From the moment I strolled into my so-called interview until I severed ties with the company, I felt uneasy. In retrospect, the other representatives also exhibited anxiety.”
The lesson here is to trust your instincts. If something does not feel right, whether it is a fraud or not, it is not for you. If you feel coerced or deceived, it is not for you.
Additional Factors to Consider
While some of these 10 items are red flags of a scam, others, such as a sensation of unease, are not necessarily indicative of a scam but rather that the home business opportunity is not for you. By researching the company, selecting a product or service you can stand behind, and having faith in the product, company, and system, you can avoid numerous errors and create a successful direct sales business.
If it’s too late and you believe you’ve been scammed, you can attempt to get your money back by contacting your bank and filing a complaint with the secretary of state in the state where the company’s headquarters is located. The Federal Trade Commission can also be contacted.
