| Discerning network marketing businesses from scams |
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The company licensed independent contractors. In theory
these contractors would drive online businesses to retailers with
which the company had partnered and be compensated for those referrals.
Lewis says the only people in the business who made any real money
were the guys at the top. "The reality was ... the income that
was supposed to be made from the ... program was virtually nonexistent,"
she says.
And there was a catch. To get into the business, the
company charged a "license fee" of about $350. An additional
program that supposedly enhanced earnings involved an extra monthly
fee that Lewis says was in "fine print when they entered their
(credit card) info." Most of the victims didn't even realize
they were being charged until they received their credit card statements.
"From the mouth of the guy who created the MLM
company for which I worked, 'Only (1 percent) of those who work
in MLM will actually make any money,'" she says.
Distinguishing legitimate MLMs
Network marketers -- even the ones operating legally -- are complex organizations and each company has a different remuneration plan. Some sell services, such as prepaid legal or training courses, while others offer products, most times from the platform of a home-based business. Some hawk products and also pay extra if you bring in new recruits. Many states have outlawed the practice of paying bonuses for recruitment.
But within the spider's web complexity of multilevel
marketing, one thing's indisputable: The lower you are on the distribution
ladder, the less the potential for big bucks.
The Direct
Selling Association promotes the interests of multilevel marketers.
Amy Robinson serves as the organization's communications and media
director.
DSA tries to offset some of the bad press network
marketing has garnered over the years. It's a tough job because
for every Pampered Chef in the business, there are dozens of get-rich-quick
schemes intent on taking enrollees for a ride.
Robinson says the DSA has developed ethical guidelines by which the organization's members and prospective members must adhere or they're booted. She says the DSA reviews the applicant's business methods and runs background checks via state attorneys general and Better Business Bureaus.
"Multilevel marketing is really a compensation structure -- not a sales strategy," Robinson says. "In a legitimate multilevel structure, one need not recruit a single person to make money." Instead, Robinson says, the individual would make his money only by selling the product.
What, then, about front-loading -- when the participant buys lots of the product the MLM sells in order to get commissions or boost himself in the organizational structure? DSA calls it "inventory loading" and says it's not allowed. Plus, she says, the DSA has a buy-back policy that requires member companies to repurchase inventory under most circumstances.
"Most companies don't require inventory purchases at all," she says.
Will Green agrees. The owner of an MLM -- IMA Group -- Green says MLM is "very much misunderstood."
Green urges those interested in network marketing to check out the company's product before they get involved. "If you don't think the product's an excellent caliber, it's not going to make it anyway."
Green defends multilevel marketing, saying it enables
many stay-at-home and single moms to earn an income. He points to
companies such as Mary Kay, Avon and Tupperware as examples of business
networking that succeed. And one that won't? Green gives the classic
example of a venture that everyone pays into, but eventually --
as in the case of James Lewis -- there won't be enough to pay out.
The name of this program?
"Social Security," Green says. "It's an absolute Ponzi scheme." |
