How to Spot an MLM Scam

For over 17 years, friends would knock on my door to get advise on an MLM. Normally, that is a tell-tale sign of an impending pitch, however each of them knew I was about to put their program through the meat grinder. I will try to be as simple and straight forward as possible.

Turn the application over and look for these words “No Purchase Necessary”. Don’t see them?
A: Beware.
Look on the face side of the application, are you required to buy a company’s product or service to join?
A: Shred it.
(Note, a reasonable application fee or back office fee is ok. Product Purchase requirement is a Red Flag)
Is the Representative strong arming you to buy the “OPTIONAL” Product Pack?
A: Tell him to get lost. You don’t want to be part of this guy’s sales team.
If product purchase is optional, make your decision. Do you need the product, will you use the product, can you sell the product, is it more product that you will use or sell in an average month?
Is the Business NEW?
Is the Corporation behind it NEW?
Is their MLM Software in place?
Is their website live?
Is their product packaged and ready to be shipped?
Is the company Founder/President/CEO named?
Can you walk into the office and meet the corporate team?
Is the company registered to off a Business Opportunity in your state?
Is the company registered with the BBB?
Is the Product NEW?
Is the Product Food Based or Nutritional?
Do they have FDA approval?
Do they have Doctors or Professionals endorsing who you can verify?
Do the ingredients or dosage create health risk?
Is the product needed on the market?
Is the product consumable?
Is the product fairly priced when comparing to stores?
Do they have current inventories of 20 times the current membership of the company and ability to sell, deliver, and restock five times as much within a 30 day period?
A: Many companies struck the perfect product, in combination with tremendous growth.
A delicious low fat brownie introduced to a company with 1,000 members could sell/buy 1,000 x Dozen in first month. If recruitment occurs of customers and sales reps, the next could have 10,000 x Dozen.
Imagine the manufacturing facility that must rapidly increase it’s production in such a short period.
Staff, floor-space, equipment, raw ingredients… it is not easy.
Failure starts when orders are not shipped. Disgruntle members begin chargebacks and public smears. Then the Flickering Flame of Failure begins.
What Percentage is paid to the Compensation Plan
75% of Sale goes to Compensation Plan
A: Most likely an over inflated product.
50% of Sale goes to Compensation Plan
A: Reasonable, depending on the product, could be good value, could be over priced
25% of Sale goes to Compensation Plan
A: Product has high COG or Company is keeping too much.
Danger, Company could be living on too thin a margin when considering the cost of good and paying the compensation plan. The company may be living on pennies themselves and run into financial trouble.

**These numbers 1-3 could go either way. They are general observations. Each product, COG, Value, Corporate net, should all be considered. Over priced or risky situations happen on all ends of the spectrum.
Do the people that are talking to you actually know the company’s products?
Are they using them?
Are they excited about them?
Are they focused on sharing the Product?
A: Good
Are they focused on sharing the Business (MLM)?
A: Bad
Are they pushing you to join and enroll all your friends, family, and people you know?
Promoting an Endless Chain of Recruiting is the Biggest Red Flag of all.
A: Run.

In time, I will add a lot to this section.

Scams come in many many shapes and sizes. Some MLM’s require $15,000 to join. Others are variants of Gifting Programs (not much different from Chain Letters, only Online and Digital). Many have no product. Many are Recruitment schemes.

MLM is a viable marketing method. Call it Network Marketing, Direct Selling, Affiliate, Infinity, Party Plan, Multi Level, or MLM. Hands down, it is the best method for penetrating a market with a company’s products. Furthermore, with hard work many individuals have built long term residual income. Yes, you hear of those making $900,000 a month or $50,000 a month. Forget that. Those guys can do their thing. Focus on the company’s products. Be passionate about them personally. Build a loyal band of Customers. Some will choose to represent them as part of your sales team. Stay focused on the product and build for long-term.