MLM scams are becoming more prevalent as multilevel marketing (also called network marketing) becomes more popular. In today’s down economy, more and more people are looking for ways to supplement or even replace their current income as they recognize that job security is fast becoming a thing of the past. If you are thinking about joining the industry, or even if you have recently joined or switched to a new MLM company, you should exercise appropriate due diligence to avoid becoming the victim of an MLM scam.
Due Diligence – The First Step
In performing your due diligence, the internet will become your valued friend and ally. Make use of the information you find there, but beware of the current trend toward negative advertising. Other network marketers frequently try to drive potential prospects away from the competition by saying or suggesting that everyone else’s business is a scam. If you fall for these negative ads, you’ll end up passing up a number of legitimate opportunities.
The Company
See what you can find out about the company. How long has it been in business? Are at least 50% of its revenues derived from the sale of its products or services? (Although they aren’t necessarily scams, I personally would avoid any company that makes a large portion of its revenue selling marketing tools, websites, etc. to its distributors.)
Who manages the company? What is their background and experience in business and in the MLM industry?
How long has the company been in business? Like most new businesses, most of the MLM companies that are less than five years old probably won’t be around in another five years.
Look at their website. Is it professional done or does it look like a cartoon with lots of hype?
Finally, take a close look at their contract. Is it fair to both sides or does it put all of the responsibility on the distributor? Can the company make changes whenever they like and what recourse would you have if they, for instance, cut the compensation plan in half?
The Products
You want a company that has unique products that are in high demand and that are hard to duplicate. That way, you’ll be ahead of the curve on supply and demand.
The products should also make sense on their own. If you take away the business opportunity, would you buy the product at the price they’re asking? $7 widgets might make sense, but not if you can buy them at the local hardware store for $1.50.
The Compensation Plan
Step back away from the hype and look at the compensation plan. Can you reasonably expect to make the kind of money you’re looking for with their plan? Are you being paid for product sales or simply for enrolling other distributors? The latter is a pyramid scheme — run away.
For more information on how to avoid MLM scams and on internet network marketing in general, enroll in my free, cutting edge “7-Day Internet Marketing Bootcamp.” Just fill out the simple form at the top of the right hand column on this page and I’ll send you your first day’s information right away.
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