Here’s how to know when multi-level marketing is a pyramid scheme
March 29, 2022 | Corey Augenstein
CHARLOTTE — Federal regulators said complaints against multi-level marketing companies jumped during the pandemic as more people looked for new ways to work from home, affiliate WFXT reported.
Multi-level marketing is a controversial business model where people make more money by recruiting more people to sell products.
Action 9′s Jason Stoogenke explains how to tell multi-level marketing from a pyramid scheme.
They tell people they can be their own bosses and work from anywhere and is a perfect side hustle to build a rock-sold residual income.
Multi-level marketing is a billion-dollar industry and one of its selling points is that it’s easy to make money.
Jody Chase said she is one of the top earners for Pure Haven.
“It’s not easy,” Chase said. “It should be simple but not easy. It requires work.”
Chase said she can earn $15,000 to $20,000 a month because she has around 2,500 people under her who are selling products.
“It’s entrepreneurship at the heart of what this is,” she said.
Out of the 2,500 salespeople, Chase said about 10 are making an income to live on.
Chase said the business model isn’t to create six-figure earners but rather “thousand-aires” or people making $300 to $1,000 a month.
People can earn money in multi-level marketing in two ways.
They can sell the company’s products themselves to customers.
They can also recruit new distributors and earn commission based on what the new salespeople buy and sell, which is controversial.
The recruits and the people they recruit become part of the top person’s sales network.
“What MLMs make it look like on the outside is not at all what it’s like on the inside,” said Jessica Hickson, former multi-level marketer.
She has a large following on YouTube, where she warns others about multi-level marketing.
“The problem isn’t the people making all the money. The problem is the hundreds of thousands of people underneath of them who are making nothing,” Hickson said.
The FTC says there are ways to spot an MLM that is really just an illegal pyramid schemeed
- Your income is based mostly on how many people you recruit, not how much product you sell
- You’re encouraged or even required to buy a certain amount of product at regular intervals, even if you already have more inventory than you can use or sell
- You have to buy products before you’re eligible to be paid or get certain bonuses
- You have to pay repeated fees for other items, like training sessions or expensive marketing material
- Promoters make extravagant promises about your earning potential
- Promoters emphasize recruiting new distributors for your sales network as the real way to make money
- Promoters play on your emotions or use high-pressure sales tactics, maybe saying you’ll lose the opportunity if you don’t act now and discouraging you from taking time to study the company
The FTC also has a list of questions you can ask current and past sales people about their experiences:
- How long have you been in the MLM?
- How much money did you make last year, after expenses?
- What were your expenses last year?
- Have you borrowed money or used your credit card to fund your business? How much did you borrow? How much do you owe?
- Do you need to have recruits to make money?
- How many people have you recruited? How many did you recruit last year?
- How many of your recruits have left the business?
- What percentage of the money you made came from selling the product to customers outside the MLM?
- What percentage of the money you made — income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?
- How much time do you spend on the business?
- How much inventory did you buy from the MLM last year? Did you sell all of your inventory?