While not all multi-level marketing (MLM) ventures are fraudulent, there are many that aim to bilk consumers out of their money. Being able to properly identify common scams is a must, whether you’re looking to get involved in a business endeavor or are interested in a product or service as a consumer. The Balance explains how you can recognize potential scams by looking out for the following red flags.
Increased pressure to purchase inventory
While it stands to reason you’d need to purchase some stock to get your venture off the ground, some MLM businesses emphasize buying as much stock as possible before you even get started. In this case, you’ll find that you’re already in debt before you even get your business off the ground, which is usually a recipe for disaster. No reputable business would urge you to buy more inventory than you needed initially, especially when you’re a new business owner still learning the ropes.
Emphasis on recruiting
Great products and services are at the heart of all successful businesses. That’s when it’s a major red flag when an MLM is more concerned about recruiting new salespeople over actually making sales. If so, the business could be a pyramid scheme. These are illegal ventures solely focused on bringing in new recruits, for which existing salespeople receive bonuses. Pyramid schemes offer no value to consumers and can land you in legal trouble if wrongdoing is discovered.
When participating in a business, you may be encouraged to attend training seminars or other events to help you get started off on the right foot. With some MLM businesses, seminars and training materials are priced exorbitantly, which only adds to startup fees. Additionally, new business owners are often pressured to attend or purchase materials, often to the detriment of their financial stability. Training materials should be avail at low or no cost, and seminars that are exorbitantly priced should be optional in terms of attendance.