These days some of the most popular home-based businesses are multilevel marketing or “network” marketing types of businesses. As explained by the Federal Trade Commission (FTC) (www.ftc.gov), multilevel or network marketing plans are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you’ll receive commissions—for your sales and those of the people you recruit to become distributors.These recruits are sometimes referred to as your “downline.”
While some multilevel marketing plans are legitimate, others are illegal pyramid schemes. In pyramids, commissions are based on the number of distributors recruited. Most of the product sales are made to these distributors—not to consumers in general. The underlying goods and services, which vary from vitamins to car leases, serve only to make the schemes look legitimate.
Joining a pyramid is risky because the vast majority of participants lose money to pay for the rewards of a lucky few. Most people end up with nothing to show for their money except the expensive products or marketing materials they’re pressured to buy.
If you’re thinking about joining what appears to be a legitimate multilevel marketing plan, take time to learn about the plan. What’s the company’s track record? What products does it sell? Does it sell products to the general public? Does it have the evidence to back up the claims it makes about its product? Is the product competitively priced? Is it likely to appeal to a large customer base? How much is the investment to join the plan? Is there a minimum monthly sales commitment to earn a commission? Will you be required to recruit new distributors to earn your commission?
Be skeptical if a distributor tells you that for the price of a “start-up kit” of inventory and sales literature—and sometimes a commitment to sell a specific amount of the product or service each month—you’ll be on the road to riches. Often consumers spend a lot of money to “build their business” by participating in training programs, buying sales leads or purchasing the products themselves. Too often, these purchases are all they ever see for their investments.
Your Responsibilities
If you decide to become a distributor, you are legally responsible for the claims you make about the company, its product, and the business opportunities it offers. That applies even if you’re repeating claims you read in a company brochure or advertising flyer. The FTC advises you to verify the research behind any claims about a product’s performance before repeating those claims to a potential customer.
In addition, if you solicit new distributors, you are responsible for the claims you make about a distributor’s earnings potential. Be sure to represent the opportunity honestly and avoid making unrealistic promises. If those promises fall through, remember that you could be held liable.
The FTC suggests that you use common sense when evaluating a multilevel marketing opportunity. Do your homework and check with consumer report websites for reviews on the product and business. Be cautious of plans that offer large commissions for recruiters. And remember that no matter how good a product is, you’ll need to invest sweat equity as well as dollars for your investment to pay off.