How to Avoid Multi-Level Marketing Scams

Multi-level marketing businesses are prolific in North America. New companies crop up every year as others fade away into the background. A few old standbys remain year after year but all are tainted with rumors and fears of becoming involved in an illegal pyramid scheme or being taken advantage of by a scam artist. Knowing what to look for can help you determine if the MLM business you are considering is a legitimate one.

What is a Multi-Level Marketing Business?

A multi-level marketing home-based business involves the direct selling of products or services through the recommendations or endorsements of independent business representatives and building a team of fellow entrepreneurs to do the same.

If you are the business owner, you receive a commission on all direct sales. The difference between a traditional business and a multi-level marketing business is that these individual business owners also recruit other people to start their own MLM business selling the same products and recruiting their own team. The businesses all have uplines and downlines, with each business sponsoring the birth of new businesses, their downline, which become the existing business owner's team members.

The uplines also receive a commission from the products that those in their downline sell. The more people you get to sign up, the greater the commission. This plan forms a type of residual income that can continue for a time without the upline business owner selling any further products.

True multi-level marketing businesses are legitimate, legal money making opportunities and always involve direct sales of products and/or services. They are not pyramid schemes that take advantage of the businesses on the bottom rung, in fact, legit multi-level marketing business owners help new businesses by investing time, guidance, training and often financial resources to ensure the success of the new business owner. An illegal pyramid scheme always pays the upline more than the downline. One simple test for the legality of an MLM is that if the downline works harder than their upline then they will surpass the uplines' income level.

Some scams require a new business owner to invest large sums of money up front while promising large profits with little to no selling of products. Others simply collect the sign up cash and leave the new business owner to fend for themselves. A legitimate initial financial investment should be directly proportional to the cost of the products or services you will be promoting. Anything above and beyond this figure should throw up a red flag to the potential business owner.

Many people are turned off by multi-level marketing businesses simply because they involve selling products and services. These contacts may be unwilling to venture into a business of their own, but they may purchase products from an individual business and provide them with invaluable contact information of other people who may be interested in purchasing products, referring others or beginning their own multi-level marketing business. These 'customer only' contacts are an important part of an MLM business.

Spotting a legitimate multi-level marketing business versus a scam is easier if you understand the basic qualities that set a true MLM opportunity apart from an illegal scam.

Legitimate multi-level marketing business owners operate independently of the parent company, but have support from those who will profit from their product sales.

True multi-level marketing businesses sell products that are already manufactured and have a marketing plan in place.

The business does not promise unlimited wealth for little or no effort.

The commission structure pays on both product/service sales AND downline development.

The company has been in business longer than two years and has a proven track record of success.

Investing in your own multi-level marketing home-based business can be a wise financial decision for some people, but it is important to avoid becoming involved in illegal scams. If the company's goals are realistic and the fees are proportionate to the cost of the products being sold, the company is most likely a legitimate multi-level marketing opportunity.