Friday, 30 July 2010

Quick points to avoid being scammed by MLMs

Pyramid Scheme Alert (like Corporate Frauds Watch) receives emails every day asking about the legitimacy of one MLM or another. We call these the "But, what about this one?" letters. Sadly, many people fall for the MLM shell game in which they know there are 'bad' MLMs but don't know how to spot them. So they keep picking bad ones, while thinking 'most are legitimate'.
Here is a rule of thumb: AVOID ALL MLMs! We have studied the structure, pay plans and policies of hundreds of them, and found they were each and all the same 'endless chain' money trap.
But, if you do want to assess an individual scheme, use this quick and simple analysis. Will you need to recruit other sales people in order to make a sustainable profit? If so, then so would your recruits, and their recruits. Right?
That is the definition of an endless chain, also called a pyramid scheme or Ponzi scheme. Each person who makes money must get it from the next investors and each level has to be much larger than the one above, etc. And it does not matter if the money comes from fees or the purchases of inventory by each level. It does not matter if some of the money comes from a few retail sales either.
Whether you are paying in fees or making product purchases, or both with a few retail sales - it's all the same trap, if your profit depends on recruitment of other sales people (consultant, associate, coach, distributor, or whatever they call the sales reps) who must do the same.
Why is it a trap? Because the participants cannot keep multiplying level by level. There are limits to the number who can be found. There are limits to the number who would want to be in the programme.
Because there are limits, the people at the bottom will never find enough new people, nor will their recruits. You and they will ultimately fail and eventually quit, since you are on an impossible mission.
The MLM scheme itself, however, can continue for a long, long time to recruit 'failures'. Each failure will last a little while before quitting. They fail while the scheme continues to look successful. In reality the scheme's success depends on the recruits' failure. And they are led into this failure by the scheme's calculated deception about the 'income promise'.
Such a recruitment-based plan will allow less than one per cent to be at the top, and it is only within that one per cent where profit is made. (In reality, far less than one per cent make a sustainable profit). As a new recruit, you would be at the dead bottom. So you are doomed to lose from the start, based on the scheme's design, not because you did not try enough.
So a good guideline is :Unless you can make a sustainable profit from selling products, one person at a time, without a downline, you are in a scam.
If you can't make a sustainable profit from retail selling, neither can any of your recruits. Right? So this is not a 'direct selling' business. It is just a recruitment scheme, disguised to look like direct selling. That kind of plan is a carefully laid financial trap. It makes its money when you lose yours.
And, if you are in an 'endless chain' scheme, in which the only way to make money is to recruit a downline, like everyone else, the following other claims do not matter and will not help you make a profit:
--But the company is debt free! (No debt, except to all those who 'fail'.)
--The company pays out millions in commissions! (To those at the top, not to the vast majority of 'losers'.)
--It has been around for many years! (Yes, so was Bernie Madoff.)
--It has a product! (Product purchases by sales people are the way the scheme launders the money transfer. Ask how many people earn a sustainable profit only from retail selling, not recruiting.)`
--Some people make a lot of money! (How many as a percentage of the total? Answer: about one in a thousand. And where did their money come from? Answer: Sadly, it was plucked right out of the pockets of all those 'losers'.)

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