What is Scam MLM business?
The first thing most people think of when they hear about a multi-level marketing (MLM) business is that it is a scam and such people could not be more wrong. This level of unawareness usually comes from ignorance or lack of success in their own multi-level marketing business. There is also another reason why people associate MLM with a scam. It is because of the pyramid scheme which is really a scam.
What exactly is a scam MLM business?
The pyramid scheme is essentially a scam MLM business. It follows very similar strategies as MLM but is also very different from it. There are many differences between MLM businesses and pyramid scheme.
MLM is a marketing strategy whereas the pyramid scheme is a fraudulent system. MLM distributors earn money at multiple levels when they sell a product or service whereas, in the pyramid scheme, no real product or service is sold. They ask you for money just for joining the scheme.
Also, in MLM, commissions are paid when products are sold and not on enrollments of new distributors whereas pyramid schemes are solely based on commissions from new enrollments. There is no product in the case of pyramid schemes. The company buys their inventory back from the participants at the time of termination in the MLM scheme whereas pyramid schemes do not really have any inventory, to begin with. Finally, MLM businesses are legal whereas pyramid schemes are totally illegal.
Ponzi schemes and chain emails are some examples of pyramid schemes which is illegal. In a chain email pyramid scheme, chain emails persuade naive recipients to donate money to everyone listed in the mail. After the money is given, the donor is asked to replace the first name in the list with his or her own name and forward it to his own group of contacts with the hopes of getting money. Basically, the recipients supposedly keep collecting money until their name is deleted from the list. This is all in theory of course and is a great example of a pyramid scheme.
In Ponzi schemes, high returns are promised to investors by taking investment money from new members. Often, the returns are too good to be true and that is the reason that attracts many naive people to this scheme. Ponzi schemes may not be structurally similar to the hierarchical structure in a pyramid scheme but are still considered as a pyramid scheme. In the end, Ponzi participants end up losing everything.
Amway, Tupperware and Herbalife are some of the most famous examples of MLM businesses with millions of customers all around the world. These companies offer a huge variety of high quality products which are trusted and used by their customers. Distributors involved with these companies make money by selling their products rather than by recruiting new members, which only brings in a small fraction of profit than direct selling of products. Since the products and services offered are usually affordable with good quality, it is easy to find new customers and hence to make money. There are many popular MLM businesses other than the ones mentioned above.
How to recognize a scam MLM business – some red flags to look out for
There are some telltale signs that will help you recognize a scam MLM business or pyramid schemes. Before you jump into the MLM bandwagon, make sure that it is a legal business and not a scam by looking for a few these warning signs.
- They usually offer no or low-quality products or services. This is the most noticeable red flag as pyramid schemes aim to make money from enrollment commissions which is what makes it fraudulent.
- Over the top product claims like extraordinary return on investment and or miracle cures for diseases is another tactic used by pyramid scheme reps to attract members.
- Poor communication from parent companies also indicates a scam MLM business. The soul of MLM business is communication, mentoring and marketing. Poor communication will never set an MLM business for success.
- In a legit MLM business, training and business items are usually cost-free or cost very less since they are meant to help you but in the case of a scam MLM business, training and business products might be expensive.
- Honesty is the foundation of a good MLM business. Here, you sell only those products that you truly enjoy that have helped you somehow. There is no lying or hiding the truth. But a scam business will follow deceptive advertising tactics to increase profits.
- Finally, pyramid schemes and other scam MLM businesses follow high-pressure tactics to make its participants buy and stock inventory. They also employ high-pressure sales tactics.
Pyramid promoters are very good at mentally manipulating other people. They create an environment of enthusiasm and frenzy where group pressure and large rewards are used to play upon people’s greed. They discourage questioning of any kind and trick the participants into joining. Therefore, the bottom line is that scam MLM businesses like the pyramid schemes always end up with the participants losing everything.
Also, just because a lot of scam MLM businesses exist, doesn’t mean that all MLM businesses are scams. Legit MLM businesses are good opportunities for making money and the business strategy is rooted in trust, honesty, communication and marketing. So, before you join any MLM scheme, research carefully, make sure that it is legal and then participate.