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Multi Level Marketing Scams – Are They Illegal Pyramids?
Multi Level Marketing Scams – What Makes One A Scam?
Answer: It could be, but likely not. Why? Because the government is quick to shut down illegal pyramids. The problem is that often many people are naively duped and lured in to multi level marketing schemes before the government intervenes. Multi level marketing scams, or illegal pyramids, which eventually get shut down, leave the distributors broke, confused, and disheartened. I know firsthand, because this happened to me. I did get some satisfaction by giving the government data to put a company out of business. However, I was still out my money and my hopes were dashed. Let me explain the important difference, which you need to be able to recognize… Here's what constitutes multi level marketing scams, schemes or illegal pyramids: The thing to focus on is the fees and what they are used for. If a distributor, we’ll call him Bob, brings Ted into the business, and Ted has to pay a fee to join (which is common), it is illegal if Bob, gets a percentage of that enrollment fee. It’s sort of like a chain letter or a signing bonus. You may say that most multi level marketing companies have enrollment fees, and distributors do get bonuses. Yes, both are true, but enrollment fees are often for the administrative set-up costs (i.e. providing the distributor a web site, programming, etc.), and some of that money does go to paying bonuses. But the key distinction is that if the bonus is paid to Bob, when he acquires customers and/or when Ted acquires customers of the product or service then it is perfectly legal. That is what Rich Demos and Amway established in Federal Court. The case legitimized this type of compensation for bringing customers into the business. Beware: There are some companies that disguise what bonuses are being paid for, making them multi level marketing scams. To satisfy my interest, plus research, I often allow myself to be “recruited” by people in various multilevel marketing companies. There are two companies out there that offer “training” as their product. This should be a warning flag for multi level marketing scams. One was a $1500 personal development home study course. No one could even give me an outline or table of contents of what was in their course. The distributor who was recruiting me even admitted that the course was just to have something that could be mailed to the new distributor. He then emphasized to me that it was a great business for me to get in to because everyone had to get the overpriced course, and the person who recruited someone else got a 50% commission on the course. The other thinly veiled pyramid involved an $8000.00 real estate investing course where the recruiter got a $4000 commission. When I pointed out shat the most expensive competitor’s course, (which I had taken- at an even lower rate) was only $3000, they didn’t even blink- they just said “but you could earn $4000 commission!” Bottom line for detecting multi level marketing scams: if bonus money is paid for merely recruiting someone into the business and not for acquiring customers of the products or services, its not legit. “OK, I’ve Got That but I Still Want to Know: Aren’t Multi Level Marketing Scams Illegal Pyramids Because They Pay on Multiple Levels?”The above important distinction aside, many people still think of multilevel marketing businesses scams and pyramids simple because they pay on multiple levels.People think and say that all the time, but those thoughts and statements are based on misconceptions. Brace yourself for the light bulb of understanding coming on… Almost all businesses are pyramids! Yep, that’s right. Take a look at any corporation. 
On top, there is just one person, the CEO.He is paid the most and he leverages his income off the efforts of the people below him. The next level down is the Senior Vice Presidents. They don’t make as much as the CEO, and there are a few of them, but they too are compensated form the efforts of those below them. Then there are the regular Vice Presidents – more of them, and they too profit from the efforts of those below. Then upper management, middle management, lower management, or whatever the corporate structure calls them. More of them as you go down levels, and leveraged pay from those below, And so on down to all the regular, worker bees, the line employees. See the pyramid structure? But there is way where multi level marketing is actually fairer and provides more opportunity to everyone. In the traditional corporate pyramid structure, there can only be one CEO, the top paid person, and only a handful of Senior Vice Presidents, and a limited number of places at the top. That’s where multi level marketing is better. There are unlimited positions for top earners. It is all based on how a person succeeds in the business, no matter where in the structure they sit. If they excel, their pay will be commensurate. If Sue brings Mary into the business, and Sue doesn’t do much while Mary works hard and does well, Mary will ultimately make much more than Sue, even though Sue introduced her to the company. How that specifically plays out depends on the particular company’s compensation plan. Multi Level Marketing Scams – Inventory LoadingAnother thing the government watches for in detecting multi level marketing scams, is something known as inventory loading.Have you ever heard of people ending up with garages full of water or air filters? How about cabinets full of vitamins or cosmetics. The bad multi level marketing companies force their distributors to but large amounts of products. This can be for one of two reasons:
Either way, the company is assured sales, but the distributor can be stuck with much more inventory than they ever could use or sell. This is one of the key indicators the government uses to determine multi level marketing scams. I highly recommend that you only consider multi level marketing companies where you don’t have to handle any products. The best, newest companies give their distributors their own websites. The all the distributor hast o do is send a potential customer to their website. When orders are places at these better companies, the company takes the money, stocks the inventory, ships, bills and sends the distributor a commission check. Otherwise, it is much more work for the distributor and there are extra costs such as shipping or delivery that are born by the distributor- not a good deal. Another problem with inventory loading with multi level marketing scams is that often the distributor has to order so much of the product to keep qualified (sometimes to earn any commissions or to receive bonuses. Then, these companies also restrict the selling of the extra inventory at discounts or on places like eBay. The result: the distributor has a stockpile of inventory and credit card debt. I have met numerous distributors from supplement selling multi level marketing companies who report having 2+ years supply of very expensive vitamins in their cabinets. In an effort to avoid this problem, some of my close friends and business associates formed a multi level marketing company that sells discount cellular service. They boast that you will never find one of their distributors with a garage full of wireless service. Multi Level Marketing Scams – Unintentional LiesWhile this does not constitute an illegal multi level marketing scam there are, unfortunately many lies and misconceptions in that industry.Many are repeated by sincere, well, meaning people who just don’t know any better. They are repeating things they have been told and taught- things that were simplified- too much- to the lowest common denominator. Before reading this excellent, FREE book, I was totally ignorant! This book opened my eyes to the fact that I too, in my ignorance, had told many of these lies...- But not any longer now that I know. How about you? I hope that this has given you enough information about multi level marketing scams to avoid bad companies. Please know that this site, Financial Freedom Trail, is designed to help people in all areas of personal finance. While multilevel marketing can be a good way to earn more money, it is our desire to help you many ways to achieve financial freedom:
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to see all the ways our personal finance skills will help you achieve financial freedom. December 15 Special Announcement...There is a unique opportunity I need to tell you about... It is definitely not a multi level marketing scam. It is available for anyone either considering a multi level marketing business or already involved in a company. The short version is that you have a chance to participate in an online contest for anyone wanting to use the Internet effectively for multi level marketing. It’s an InterNETwork Marketing contest. There is $20,000.00 prize money. All contestants get a free year of coaching from the world-renowned Renegade Network Marketer who is showing everyone the way. Everywhere else, you'd have to pay a high fee for multi level training, but in this case everyone wins with this first-ever coop-etition! The contest and free coaching last for a year. Hurry, because the contest entry (and ability to get the coaching) closes on February 6, 2008. Ann Sieg, the coach, is one of my favorite and most important mentors. You can read a sampling of her insights in this free ebook. You can also read her outstanding book, from which also gives you lifetime access to the lead generation system she effectively uses. But don’t forget to enter the contest!
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