Have you ever thought about becoming a distributor for a multi-level
marketing company in order to make a little extra money or build a
business working on your own? Multi-level marketing is a system of
retailing in which consumer products are sold by independent businessmen
and women (distributors) usually in customers' homes. You can set your
own hours and earn money based on your efforts and ability to sell
consumer products or services supplied to you, the distributor, by an
established multi-level marketing company.
The multi-level company also will encourage you to build and manage your
own sales force by recruiting, motivating, supplying and training others
to sell the products or services. A percentage based on the sales of your
sales force would be your compensation, in addition to personal sales.
Although it is possible to build a successful multilevel business with
comparatively little start-up money, keep in mind that it is not a means
of getting rich quickly or easily. Successful distributors who have
recruited and trained a large number of sellers, also have to assume
ongoing wholesaling and managing responsibilities as well as making sales
to their own retail customers. Managing such a large network can be
lucrative, but it is hard work and can become a full-time job.
WATCH OUT FOR "PYRAMID" SCHEMES
"Pyramid" schemes, on the other hand, concentrate mainly on the quick
profits to be earned by selling the right to recruit others. The
merchandise or service to be sold is largely ignored, and little or no
mention is made regarding a market for the products. Pyramid scheme
participants attempt to recoup their investments in products by
recruiting from the ever- decreasing number of potential investors in a
Unless you recognize the tactics of a pyramid scheme, you may find
yourself tempted to become involved. Here's a typical example:
You have just been invited by a friend, neighbor or colleague to attend
an "opportunity meeting" to find out how you can earn lots of extra
money. You go, thinking this may be a way to build a business on your
own. In a frenzied, enthusiastic atmosphere you are told how easy it is
to realize a fabulous return on your investment. A smooth-talking
organizer may try to convince you that his plan is an exciting short cut
to riches, easy living and early retirement. To invest you usually have
to pay a large fee. The organizer may tell you that you don't have to
invest (buy products, courses, etc.), but it is clear you are expected
to, or would be a fool not to.
You are confused. You are not really sure what the product or service is,
or how it's going to be sold. Instead, the emphasis of the meeting has
been on the fact that all you have to do, aside from investing your money
in the program, is to get others to invest. The plan focuses more on the
recruiting of other participants than on selling the product or serivce.
Consider the results if one person recruited six distributors, each of
whom, in turn, recruited six others, and carry the process through nine
steps as follows:
At more than ten million people for every nine steps in the distribution
program, the distributors soon would be recruiting one another. In order
for everyone to profit in a pyramid scheme, there would have to be a
never-ending supply of potential (and willing) participants. Obviously,
there isn't. When the supply runs out the pyramid collapses and most
participants lose their investment.
The tragic aspect of pyramid schemes is that they concentrate on and
exploit people with limited means and limited knowledge of business-
people who can ill afford to lose the investment they put into the
program. Thousands of unsuspecting and trusting investors have lost
millions of dollars by investing in pyramid schemes. Even worse, the
schemes have robbed some retired persons of their life savings.
Pyramid schemes are illegal throughout the United States. Keep in mind,
however, that it is difficult to prosecute these schemes; most often the
money invested is lost.
It's always a good idea to check your Better Business Bureau for a
reliability report on any company in which you are thinking about
investing. Also, if you feel you have been defrauded, your state attorney
general may be able to advise you of some possible recourse.
GUIDELINES FOR INVESTORS
* Be wary if the start-up cost for the investment is substantial.
Legitimate multi-level marketing companies usually require a small start-
up cost. Pyramid schemes, on the other hand, pressure you to pay a large
amount to become a "distributor." The promoters behind the scheme make
most of their profit on the signing up of new recruits.
* Find out if the company will buy back inventory. If not, watch
out... you could be saddled with unsold inventory. Keep in mind that
legitimate companies that require you to purchase an inventory should
offer and stick to inventory buy- backs for at least 80 percent of what
you paid. some state laws require 90 percent buy-backs.
* What is the consumer market for the products? If the company seems
to be making money by recruiting alone, you will want to stay away!
Remember, multi-level marketing depends on selling to consumers and
establishing a market for quality products. Pyramid schemes, however, are
not concerned with sales of the products. Rather, they focus on profits
to be made on volume sales to new recruits who buy the products in order
to participate in the scheme.
* Before investing, get all the facts about the company, its officers,
its products. Find out the start-up cost and the company's buy-back
* Get written copies of the company's marketing plan, sales
* Check with others who have experience with the company and its
products. Are the products actually being sold to consumers?
* To check on a company, contact your local Better Business Bureau,
district attorney or state attorney general's office. Also, you may want
to contact the Direct Selling Association (1776 K Street, N.W.,
Washington, D.C. 20006), a national trade association representing
legitimate in-home sales companies, many of which engage in multi-level
modified from a BBB Consumer Information Publication
Copyright 1983, 1994 Council of Better Business Bureaus, Inc.
4200 Wilson Blvd., Arlington, VA 22203
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