MULTI-LEVEL marketing, or MLM, as it has become known, accounts for a growing number of small business startups.
MLMs are not for everybody, and there are many schemes that border on what is actually legal in the direct sales industry.
But there is an important aspect of MLMs that can’t be overlooked: they have created millionaires the world over.
Multi-level marketing firms are organizations that sell products through a sales organization made up of sales managers and their recruits. The process of recruiting and selling, and then recruiting more and selling more, creates a pyramid-type organization that is sales-based and that builds many separate independent businesses based on commissions and bonuses earned throughout the organization.
Even though the MLM model involves a pyramid-like structure, it is important to distinguish between a legitimate MLM and an illegal pyramid scheme.
Many refer to all MLMs as pyramid schemes, which is not accurate.
Illegal pyramid schemes have some red flags that should alert potential members of possible fraud.
The most obvious red flag is that the organization makes money, even if it doesn’t have any retail customers. A retail customer is someone who buys the product who does not participate in the organization in a selling capacity.
There are some MLMs that make more money from a variety of activities geared to sell goods and services to members. These products include goods for resale, which is completely legitimate.
However, the sales of additional goods and services, such as business manuals, books and training materials can actually put a legitimate MLM in the crosshairs of regulators if the revenue earned from such sources approaches that earned from retail sales.
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