Multi-level marketing companies are those who have a trickle-down approach to revenue. This means that employees, or “distributors,” are hired to sell products, as well as to encourage others to sell products as well. These distributors get a percentage of the profits they make from selling their own product, and a share of profits that their recruiters make.
However, MLM business haven’t gotten the best reputation over the years, and many regard them as pyramid schemes that are borderline illegal.
It should be noted that not all MLM companies are bad. Some businesses with the MLM model actually do their best to help their recruiters succeed, and many of their recruiters actually do make a decent living working for MLMs.
Working for a multilevel marketing company has its own benefits, and there are a few reasons for instances where real success happens. Dedicated distributors take marketing the MLM in their own hands, understand how to maintain a website and know the difference between shared hosting and VPS and how it affects site performance, and can cultivate social communities to spread awareness about their products.
Therefore, this post isn’t about being anti-MLM. The goal of this post is to help potential recruiters understand when an MLM isn’t out for their best interests. The key is to do your research. Here are a few signs of a bad MLM company:
1. Poor Product Reviews
Rather than take the recruiter’s word for the validity of the product, it’s important that you look up reviews for yourself. If customers who have actually purchased the product—not as a distributor—aren’t happy with the quality, that says something about the product that they’re selling.
Furthermore, even if you aren’t fully convinced that the bad customer reviews you’re reading are accurate representations of the brand, you still have to consider what the average consumer thinks about when they research your product before they purchase it. After all, studies have shown that 88% of online shoppers trust online reviews just as much as they trust word-of-mouth recommendations.
Researching legitimate reviews can be difficult when it comes to MLM businesses, because so many recruiters post their own glowing reviews. The key is to look for reviews penned by actual customers. Pay attention to reviews on ConsumerAffairs.org and complaints filed with the Better Business Bureau.
2. They Require You to Hold Bulk Inventory
If a company pressures you to purchase large amounts of inventory, it’s a sign that that’s how the company is making the bulk of their money. There are many MLM companies that require distributors to fork over loads of cash before they begin work. LuLaRoe, a women’s apparel company, and AmWay, a cosmetics and home goods company, are both stark examples of this.
LuLaRue has several lawsuits pending because of their insistence that their recruits purchase large amounts of inventory upfront, and have little to no control over which inventory they receive. In fact, LuLaRue has been known to persuade recruiters to purchase upwards of $6,000 worth of clothes, and the company owes millions on promised refunds.
AmWay, on the other hand, has a reputation for not just requiring distributors to purchase product, but to purchase many other miscellaneous items. The company hosts $250 seminars to help recruits learn how to better sell product (something that should be provided for free), and also pushes digital videos that need to accompany these seminars. Furthermore, a report published in 2008 found that only 90 of their 33,000 independent business owners actually made enough money to cover the costs of the inventory they purchased.
3. Red-Flag Verbiage
When you think about pyramid schemes in the MLM world, one of the biggest things to look out for is red-flag verbiage. Red flag words and phrases to look out for include anything that makes you feel as though you can get rich overnight. This includes “get rich,” “become a millionaire,” and other wild claims of getting rich fast.
Any company that has grandiose ways of portraying riches should be approached cautiously.
4. High-Price, Low Quality
Furthermore, many MLM companies are accused of selling high-priced versions of similar products that can be easily purchased elsewhere. DoTerra is a great example of this. The company sells essential oils that are labeled “certified therapeutic grade.”
However, a little research shows that this is a term the company created on their own. “Without an accepted standard for essential oil quality, doTERRA created its own testing process, calling it CPTG Certified Pure Therapeutic Grade,” the company writes on their website. Other labels that are widely known and accredited, like “organic” or “non-GMO” do not apply for their products. Furthermore, you can find comparable organic versions of nearly all of the company’s oils.
