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What should I know about multi-level marketing schemes?

Have you ever been invited to a business deal, asked to sell a product, work from home and earn a huge commission? How did you respond to it? Did you know that this could be a multi-level marketing scheme? Remember to always be careful about posts we see on social media even if they are from trusted friends or family members. Always be wary of the risks that this may bring you once you start to engage.

Multi-level marketing may not be a bad thing at all BUT it is best to know it carefully and ask the following questions:

  • Are you being asked to ‘invest’ a large amount of money up front to become a distributor? This request can also be disguised as an inventory charge. Legitimate multi-level marketing businesses do not ask for large start up costs.

  • If you do have to pay for inventory, will the company buy back any unsold inventory from you? Legitimate multi-level marketing companies will offer and stick to inventory buy-backs for at least 80% of what you paid.

  • Is there any mention of a market for the product or service? Multi-level marketing depends on establishing a market for the company's products. If the company doesn't seem to have any interest in consumer demand for its products, that’s a red flag - don't sign up.

  • Is there more emphasis placed on recruitment than on selling the product or service? The difference between multilevel marketing and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, then do not sign up for this company.

Understand what the focus of the company is by asking yourself:

  • Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself? This is the signature of a pyramid scheme operation, not a multi-level marketing scheme.

  • Are you offered commissions for recruiting new members? This is another sign of a pyramid scheme. It's the number of people who are willing to sign up that matters in a pyramid scheme, not the products or services being offered.

Always be very cautious before investing in any scheme and never borrow money or take out a loan for investment purposes. Money for investments should be any extra money you may have that you do not need to use in the short term. Never invest more than you can afford to lose.

(Points sourced from: The Balance - Susan Ward)