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The 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 your "downline."
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
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
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.