Cookware, makeup, lotions and potions, supplements, candles, essential oils, jewelry and the list goes on. All are products sold by companies whose business models include sales via word of mouth and home-based parties.
If you attend the party, you’ll be invited to join the company and to join the thousands — maybe even millions! — of others who found financial freedom as a company consultant.
But you may be wondering how multi-level marketing companies, which are legal, are different from pyramid schemes, which are not. Here’s the answer: If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. Instead, it’s a pyramid scheme, according to the Federal Trade Commission.
Better Business Bureau Serving Northern Colorado and Wyoming and the FTC offer these red flags to help you identify a potential pyramid scheme:
• Recruit, recruit, recruit. If your income is based predominantly on how many people you recruit into the program, not how much product you sell, it’s a pyramid scheme.
• Buy our product, lots of it. Many pyramid scheme operations require participants to buy the product or other items to stay in good standing with the company.
• Live the lavish lifestyle. The recruitment pitch says you’ll be living in the lap of luxury. It fails to tell you most people in a pyramid scheme lose money.
• Oftentimes new recruits are encouraged to sign agreements or contracts on the spot. Take your time. Ask your sponsor and other distributors tough questions, such as:
• What are your annual sales of the product?
• How much product did you sell to distributors?
• What percentage of your sales were made to distributors?
• What were your expenses last year, including money spent on training and buying products?
• How much money did you make last year – that is, your income and bonuses, less expenses?
• How much time did you spend last year on the business?
• How long have you been in the business?
• How many people are on your team?
• What percentage of the money you’ve made — income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?
For more consumer tips and information, go to bbb.org.