7 Warning Signs of an MLM Scam

How to steer clear of those multi-level marketing — MLM — tricksters: Internet Scambusters #729

MLM — multi-level marketing or network marketing — is one of those gray areas of business where it’s often difficult to tell the difference between legitimate programs and rip-offs.

Lured by the money-making opportunity as well as the prospect of working from home, participants have collectively lost hundreds of millions of dollars.

In this week’s issue, we’ll tell you a little more about how these programs work and identify the warning signs that signal you may be walking into a scam.

Before we begin, you may want to spend a moment looking at this week’s most popular articles from our other sites:

Simple, Non-Obvious Ways to Conserve Energy: If your household energy bill is out of hand, put these tips in action to conserve energy — and therefore, money.

Be Cautious With Your Charitable Giving Part I: Charitable giving can make you feel really good but you’re going to feel pretty bad later on if you learn that the charity was a scam.

Saving Money With Your Kids: If you really want to do something important for your kids, teach them to save money so read on for some great tips.

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Planning Your Christmas Greeting Cards: It’s time to do Christmas greeting cards the right way and this article will get you heading in the right direction!

Now, here we go…

7 Warning Signs of an MLM Scam

Are you hooked into a multi-level marketing (MLM) program and feeling a sense of despair about even covering your costs, never mind making a profit?

Or maybe a friend or relative has invited you to join in their MLM program with a promise of instant wealth.

Well, someone will certainly be making money from it but, unless you’re a natural born seller, it likely won’t be you.

In very simple terms, MLM is a selling program in which participants earn money both from the products they sell and from other people they recruit into the program.

Some of these are perfectly legitimate, although not always profitable for the participants. But, as we reported earlier in Top 10 Work At Home and Home Based Business Scams, there are also MLM schemes which are downright scams.

One thing to be aware of at the outset is, legitimate or not, plan members usually have to buy the products themselves out of their own funds.

They may then try to sell them to consumers or take on the role as “distributor,” re-selling them to other participants.

If you fail to sell them, in most cases, you’re stuck with them and can’t get your money back.

The scale of some of the scam programs might surprise you.

For instance, the Federal Trade Commission (FTC) recently returned $200 million, yes $200 million, to people who either participated in or bought from a herbal products MLM program.

The firm involved was accused of misleading participants about how much they could earn from membership and sales.

“Each year, many people join multi-level marketing plans – and many also leave,” says the FTC.  “Because your time and money are valuable, it pays to do some research in advance.”

If you’re thinking of joining an MLM program, or a network marketing plan as it’s sometimes called, here are 7 warning signs that it could be a scam or, at the very least, you won’t be able to make much or any money from it:

* Too much emphasis is placed on getting more people to join the plan — building your team as they might call it — than on actually selling products. In fact, the plan sponsor may suggest you don’t need to worry about selling it because you can supposedly make so much more by recruiting others.

As the FTC points out, if you’re unlikely to be able to make money from selling the product, your recruits will likely also find it difficult. And if they’re left out of pocket, you could lose a good friend.

* Claims about the effectiveness of the product or the ease of selling are not backed by evidence and seem to be over the top, fitting into the well-known scam category of being “too good to be true.”

* The organization behind the program either doesn’t provide training or if it does, again, it’s skimpy and places emphasis on how to recruit more members. Beware too if the program involves paying for your training.

* You’re offered an opportunity to “progress” to a higher level of membership if you buy a bigger bulk supply of the product. You may also be asked to pay for extras like business stationery or a special sales kit.

* Your supervisor or recruiter demonstrates a sense of urgency, adding more pressure on you either to recruit more members or buy more product.

* Communication is very weak. The organization is slow to answer questions or respond to concerns or complaints.

* Membership is referred to as a “job” or as “employment.” You won’t be working as an employee of the organization — you’ll be self-employed, effectively running your own business — so any suggestion that you’re being hired should be treated with suspicion.

Finally, of course, if the program just doesn’t feel right, then trust your own instincts!

One of the main attractions of MLM plans is that you can work from home at hours that suit you.

True. But that only makes sense if you can sell the product.

If you’re considering joining a program, you should ask yourself whether you think you can truly sell this product to friends and family. And how will you go about selling it to others you don’t know?

“If you’re born to sell, then ask yourself – what about this product?” says the FTC. “Will the people I know buy it once as a favor to me? Would they buy it repeatedly and consistently? For how long, and at what price?”

Also, make a realistic calculation of your likely expenses in terms of buying the product, paying for gas and sales materials — and the amount of time you will spend not actually selling anything.

Before doing any of that, invest some time in checking out the program.

Do an Internet search on the organization and its products using the word “scam” or “fraud” and you will quickly learn what other participants are saying.

Another useful research site is MLM Watch, which is part of the non-profit Quackwatch Corporation.

We can’t vouch for its credentials or accuracy — the site definitely promotes sales of its own products — but it is jam-packed with free and helpful articles about MLM fraud and pyramid schemes.

The FTC also provides some fairly detailed advice on how to evaluate an MLM program and what questions to ask.

Alert of the Week

Watch out for a new spate of fake, discounted airline tickets currently dropping into inboxes.

The messages use the names of major airlines in the subject line and then list what seems to be a menu of cut-price fares to major U.S. destinations.

One clue that it’s a scam is that the “$” sign often appears after the fare-price number — for example “198$”.

But if you click the link that promises to provide a discount voucher, you’ll download a piece of ransomware that locks up your computer.

That’s all for today — we’ll see you next week.