Updated: March 13, 2020
Multi-level marketing is a legitimate business model. It is a great way to learn how to become an entrepreneur, develop your leadership skills and of course, become rich.
But the world of MLM is not without greedy people who are just out there to rob honest individuals like you of your hard-earned money.
So what can you do? How can you avoid illegal MLM Pyramid schemes?
Below are eight simple questions to ask your MLM sponsor or recruiter if you want to check the legitimacy of the company.
These are based on the 8-Point Test released by the Direct Selling Association of the Philippines as supported by the Philippine Department of Trade and Industry.
1. What product are you selling?
All legitimate businesses sell a product (or service). This means the moment that your MLM sponsor says that there’s no need for you to sell anything, then RUN AWAY!
2. Can I make money without recruiting anyone?
The answer must be yes, because you should be able to make money through commissions paid on the sales of their products. Besides, it’s easier to continuously sell products than to continuously recruit people.
3. Is it possible for me to make more money than you?
New members of an MLM company should have the same income potential as older members because this means the compensation plan is fair. The intent should be to sell a product and not to sell a position.
4. If I have no downlines, is it possible to make as much money as someone who has downlines?
Again, the answer must be yes. You should be able to earn as much from simply selling products, as someone who is more focused on recruitment. Be sure to have your recruiter do the math in front of you – if they can’t then RUN AWAY!
5. If everyone stops recruiting, can everyone still make money?
The answer should be yes because everyone can just focus on selling products. The strength of an MLM company is business duplication which when removed, should simply transform them into a traditional business model, and not crash down in flames.
6. Is there a reasonable product return policy?
A business should protect the rights of consumers by implementing such fair practices in their sales transactions. Ask them what the process is if someone wants to return or get a refund for an unopened or unconsumed product purchase.
7. Does your product have fair market value?
Your recruiter should be able to explain why their product costs that much. Make sure that the price is not unreasonably bloated, whose only purpose is to pad the sales commissions for the uplines.
8. Why would non-members want to buy your product?
There should be a compelling reason to buy their product, especially for those who do not want to become a member. This is a test if product movement (and income) can be sustained if recruitment stops.
Multi-level Marketing can make you rich
Yes, I’ve met a lot of people who have achieved financial freedom through multi-level marketing, and you can too.
But beyond asking your recruiter for the company’s legal documents, history, compensation plan and all other questions that I’m sure they have practiced the answers to – give them the eight questions above.
Observe if they will be confident in their replies, or fumble with obvious lies. If it’s the latter, then that’s your cue to RUN AWAY!