Is My MLM Company a Scam?
This is a question that most Network Marketers ask about the MLM company that the join.
If you don’t know the difference between MLM and Network Marketing it’s simple…
MLM describes the compensation structure of a company (multi-level marketing) while Network Marketing describes the industry or profession that encompasses companies that use MLM as their compensation.
So a Network Marketing uses MLM to pay Network Marketers to distribute their products and services.
If you’d like to learn more about what Network Marketing really is you can take a look at another post called “What is Network Marketing.”
How Do I Know If My MLM is a Scam?
For a MLM structure to be classified as an illegal pyramid scam, it would pay commissions simply on the recruitment of distributors throughout the multiple levels of the pay plan.
Meaning, a distributor would pay a fee to join and a bonus would be paid to the people above them in the MLM pay structure.
There would be no products or services being purchased that triggered the bonus payout.
Yes, this would be an illegal MLM pyramid scam.
However, in my 23 years of being involved in Network Marketing and earning commissions from a MLM compensation plan, I have never seen a company pay this way.
In all Network Marketing companies a distributor may join but they must either enroll a customer or become a customer in order to release commissions into the MLM compensation plan.
Now, just because a Network Marketing company isn’t running an illegal MLM pyramid, doesn’t mean there aren’t MLM scams, there are.
Are There MLM Scams?
Yes, there are MLM scams. It’s a fact of any industry that people will do whatever they can to cut corners and make a quick buck.
From time to time we will see companies pop-up under the Network Marketing umbrella and using a MLM compensation structure and they’re nothing more than a money game.
These companies usually are only around for a couple of years or less.
They tend to create a lot of buzz and excitement and suck a lot of people into the scam.
How To Identify A MLM Scam...
Unfortunately, it can be difficult to tell if a company is a scam when they first launch.
Usually, these scams will do a good job of creating a launch that looks legitimate.
They’ll have really nice marketing collateral (websites, videos, presentation materials, etc.) and they’ll do a wonderful job of creating excitement around the pre-launch and launch.
But there’s a very easy way to tell if the company is going to make it or not and whether or not they are a scam or money game.
I call it the “customer sniff test.”
The MLM Scam "Customer Sniff Test"
To see if your MLM company is likely a MLM scam ask yourself a simple question: would a customer buy this product (at the price it’s listed) even if they couldn’t make money from the compensation plan?
If the answer is “no” or even “well, maybe” then it’s likely your company is likely a recruiting/money game and will be classified as a scam at some point.
Listen, if the product isn’t in demand and doesn’t have real market value and the only reason people are buying it is to participate in the MLM compensation structure then you’re in a scam.
What Are Examples of MLM Scams?
We’ve seen numerous examples of MLM scams throughout history. I’m not going to get into naming names because I have no desire to argue with people.
But I’ll give you some examples of types of products and structures of opportunities to be on the lookout for:
1. Companies that require HUGE startup fees ($1,500+) that are labeled as software/personal development/financial coaching/bitcoin/etc. MLMs. Just remember the sniff test. If people aren’t buying the product without the MLM structure then it’s likely a scam.
2. Companies that require that you buy the higher priced packages in order to earn all MLM compensation structure has to offer.
A legitimate MLM compensation plan would allow you to join for little to no cost at all and allow you to promote yourself all the way through the ranks without ever buying anything yourself.
Yes, many companies will require personal sales volume and that’s fine – as long as a distributor has the ability to gather retail customers to satisfy that personal volume requirement.
3. Companies that don’t have real offices or headquarters. Look, I’m not saying the company that’s brand new needs to have a 30,000 sq. ft. office building. But they should at least have an office with one or two offices in it.
Be cautious of companies that only have a P.O. Box or use a virtual office address (such as a UPS Store or other virtual office company).
4. If the company doesn’t take American Express as a payment option this is a huge red flag. Amex lets customers charge back a purchase at any time and MLM scams usually know that their product/service is crap and people will eventually figure it out.
5. Companies that only pay commissions via a payment card or that keep having to change their payment methods and merchant accounts are usually huge red flags.
Merchant accounts don’t work with scams and if they feel the company is a scam they’ll shut off their merchant processing. So if you constantly see your company’s credit card processing or commission processing changing, run.
There are other examples of things to watch out for to avoid MLM scams but I think you get the idea.
What Do I Do If I'm in an MLM Scam?
It can be incredibly embarrassing to find out you’re participating in a MLM scam.
Typically what I see is people stick it out and try and justify why their company isn’t a scam because they’re too proud to admit they messed up.
My advice if you’re in a MLM scam:
If possible, call your company and try to get your money back.
If you used an American Express card you can usually charge-back your fee you paid.
Just be honest. Be honest with yourself and be honest with the people you’ve enrolled.
If you call them and let them know you messed up they will respect you.
Whatever you do, don’t try and hang on until you’re the last one holding the bag. It’s going to ruin your reputation with your contacts and will likely prevent you from ever having success in this wonderful profession of Network Marketing.