Bottom Line About Multilevel Marketing Plans
Multilevel or "network" marketing plans are a way of
selling goods or services through distributors. These plans typically promise that if you
sign up as a distributor, you'll receive commissions - for your sales and those of the
people you recruit to become distributors. These recruits sometimes are referred to as
Some multilevel marketing plans are legitimate. However, others are illegal pyramid
schemes. In pyramids, commissions are based on the number of distributors recruited. Most
of the product sales are made to these distributors - not to consumers in general. The
underlying goods and services, which vary from vitamins to car leases, serve only to make
the schemes look legitimate.
Joining a pyramid is risky because the vast majority of participants lose money to pay
for the rewards of a lucky few. Most people end up with nothing to show for their money
except the expensive products or marketing materials they're pressured to buy.
If you're thinking about joining what appears to be a legitimate multilevel marketing
plan, take time to learn about the plan. What's the company's track record? What products
does it sell? Does it sell products to the public-at-large? Does it have the evidence to
back up the claims it makes about its product? Is the product competitively priced? Is it
likely to appeal to a large customer base? How much is the investment to join the plan? Is
there a minimum monthly sales commitment to earn a commission? Will you be required to
recruit new distributors to earn your commission?
Be skeptical if a distributor tells you that for the price of a "start-up
kit" of inventory and sales literature - and sometimes a commitment to sell a
specific amount of the product or service each month - you'll be on the road to riches.
Often consumers spend a lot of money to "build their business" by participating
in training programs, buying sales leads or purchasing the products themselves. Too often,
these purchases are all they ever see for their investments.
If you decide to become a distributor, you are legally responsible for the claims you
make about the company, its product and the business opportunities it offers. That applies
even if you're repeating claims you read in a company brochure or advertising flyer. The
Federal Trade Commission advises you to verify the research behind any claims about a
product's performance before repeating those claims to a potential customer.
In addition, if you solicit new distributors, you are responsible for the claims you
make about a distributor's earnings potential. Be sure to represent the opportunity
honestly and avoid making unrealistic promises. If those promises fall through, remember
that you could be held liable.
Evaluating a Plan
The FTC suggests that you use common sense when evaluating a multilevel marketing
opportunity and consider these tips as you make your decision:
Avoid any plan that includes commissions for recruiting additional
distributors. It may be an illegal pyramid.
Beware of plans that ask new distributors to purchase expensive products
and marketing materials. These plans may be pyramids in disguise.
Be cautious of plans that claim you will make money through continued
growth of your downline, that is, the number of distributors you recruit.
Beware of plans that claim to sell miracle products or promise enormous
earnings. Ask the promoter to substantiate claims.
Beware of shills - "decoy" references paid by a plan's
promoter to lie about their earnings through the plan.
Don't pay or sign any contracts in an "opportunity meeting" or
any other pressure-filled situation. Insist on taking your time to think over your
decision. Talk it over with a family member, friend, accountant or lawyer.
Do your homework! Check with your local Better Business Bureau and state
Attorney General about any plan you're considering - especially when the claims about the
product or your potential earnings seem too good to be true.
Remember that no matter how good a product and how solid a multilevel
marketing plan may be, you'll need to invest sweat equity as well as dollars for your
investment to pay off.
The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a
complaint or to get free information
on consumer issues, visit
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
FEDERAL TRADE COMMISSION
FOR THE CONSUMER