Multilevel Marketing: How the Scam Works
Have you ever been asked to pay money to make more money? If so, then you should readily have your flags up. MLM i.e., Multilevel Marketing, is the name of one such organized proposition. Here is the ultimate guide to avoid a company that’s selling you a pyramid scheme.
Table of Contents
- Key Principle Behind the MLM Scam
- Where Are They Applied?
- The Pyramid Scheme Explained
- How To Recognize a Pyramid Scheme
- MLM Niches
- Multilevel Marketing: Who is Likely to Fall Prey?
- Success Rate in a Pyramid Scheme
- Negative Impacts of MLM Scams
- How Does The MLM Thing Work
- How They Recruit You
- How Can You Avoid MLM Scams?
- What To Do If You Have Been Scammed
- How to Report an MLM Scam
The multilevel marketing propositions are, most of the time, a precursor to a scam. No doubt, legitimate MLM companies exist, but most Pyramid Schemes run their illegal business by posing as an MLM. So unless you are making an off-the-counter exchange, handing in money beforehand is not smart. Let’s get started.
Key Principle Behind the MLM Scam
Many schemes exist that promise you high revenue in exchange for a participating price. They pose this participation price as a small amount as compared to the result; you will be able to earn.
This is the fundamental principle behind Multilevel Marketing scams. You may have heard of them as pyramid selling or network marketing or even referral marketing (some examples are the Gifting Tables Scam or the Blessing Loom). However, giving it rational names does not make it any less of a scam.
Where Are They Applied?
MLMs are schemes that are used as direct sales strategies. In the past, we had discussed face to face scams; direct sales is one of its types. Direct sales mean that these products or services are not offered through a retailer. In simpler words, you will not find any of these products on shelves.
These are hand to hand exchange goods or services. Consequently, these companies require a large workforce to engage in such an exchange. So they convince you into being a part of it and further persuade others to join for the sake of great rewards. You will be acting as a commission-only sales agent. It’s more of misleading use of words than an actual business strategy.
The Pyramid Scheme Explained
This scheme heavily depends on recruiting more and more people. Those at the top of the line are referred to as the “up-lines”. The ones they have recruited to work under them are termed as “down-lines.” In an MLM company, the up-lines profit from the sales commission of the down-lines.
So, this compels the unfortunate victims of this scheme to keep looking for newer recruits to better their chances of earning. Hence this scheme is aptly named so as the Pyramid Scheme. Not to mention this scheme is illegal and such businesses once identified are shut down within six months or up to a year.
The multilevel marketing fraud is similar to a Ponzi scheme in that both are based on using new investors’ funds to pay the earlier backers.
How to Recognize a Pyramid Scheme?
Some of the factors that could help you identify a pyramid scheme when you see one is discussed below.
1. Building a Team: One of the things that highlight a pyramid scheme is its emphasis on recruiting more than product development. If someone talks more about building a team rather than the actual product, then this is the point where you should question yourself if it’s a scam. You will know it when in business, the product is not the priority; instead, recruitment is the primary focus.
2. Too good to be true: As the saying goes, if it’s too good to be true, it probably is. The same goes for this. Pyramid schemes revolve around recruiting more than the actual product. So instead of advertising the product, they list down the benefits you get if you join. The promise of massive earnings and learning opportunities are all a red flag.
3. Call to Action: Pay attention to what they demand of you, especially if it comes with a time constraint. If they want you to “Act Fast”, “Don’t Think”, “Get Started Today” then you must think it again. Investments, however small or big, need to be researched and thought over. It is your money at stake. So do not make rash decisions no matter how time-limited an offer may seem.
MLM Scams are another name for pyramid schemes. Here we have listed down the categories that typical MLM businesses work.
- Home Care Products
- Dietary Supplements
- Essential Oils
- Personal Care Products
- Nutritional Products
Some characteristics of these pyramid schemes include advertising of “outstanding business opportunities or claims that their products have incredible benefits, such as “Anti-tumor” and “cardio-protective” properties. Many products are not even FDA approved. The Fraud Discovery Institute also reported that certain products contain excessive lead, which could cause serious health problems. A business that is a risk to general health is questionable and maybe a fraudulent scheme.
Multilevel Marketing: Who Is Likely to Fall Prey?
The basic idea behind the multilevel marketing fraudulent practices is to target non-salaried individuals as part of their workforce and coerce them into selling their product or service.
These individuals are attracted to earn easy earning opportunities. Some of the commonly targeted victims of such scams are staying at home mothers looking to improve the cash flow of their household, military wives that wish to be useful or other unfortunate souls compelled at the hands of financial instability.
These scams exploit the weak spots of people in terms of their financial standing. They lure people into their schemes with the promise of high rewards such as:
- Life-altering amounts of income
- Very Less working hours
- Full-time income for part-time work
- The convenience of working from home
Most of these are false opportunity advertisements. The list mentioned above of categories shows that such businesses are diverse and far-reaching. They use their outreach as a selling point to convince you that they are a well-known brand.
Success Rate in a Pyramid Scheme
Success is not guaranteed in such schemes, no matter how many rewards they promise you. You are most likely to lose money according to FTC reports. It is not a question of your capabilities or how hard you worked; it is a question of how good are you are to deceit.
Most of the time, people end up earning lesser money than they initially put in. More than 80% of the participants end up losing money. The people at the very top will always be the ones making the most money.
But it is highly unlikely you will make it to the very top despite their numerous encouragements. The 1% of the people taking part in this (and earning large sums of money) need to realize that they have achieved all this at what cost? It’s from the hard-earned money coming out of other people’s pockets.
Negative Impacts of MLM Scams
There are no doubt repercussions to being a part of such fraudulent activities. Most of these affect people on a personal level. Some of these are:
● Loss of Money: To make money, you have to put in money, which you end up losing at the end of the day. So what minimum amount of money you initially had is also a lost cause.
● Compromising on Morals: Taking money from someone who needs it to make your profit is as ethically wrong as it sounds. Working with an illegal MLM company is about misleading people and giving them excessive false hope of success. It is no lie that MLM Schemes are not a test of your capabilities; instead, it is a test of your moral high ground.
● Hit to Your Dignity: Once you get into the MLM scheme practices, you quickly realize the error of your ways. Not only are you pressurizing someone into joining who is clearly least interested but is also not in a position to lose money. This requires you to put down your self-respect and be relentless in your pursuit.
● Blow to Self Esteem: If you do not succeed, and it is highly likely you will not, blame you. The eventual result will be the degradation of your capabilities and the effort you put in. They will have you convinced that you lost money because you did not work hard enough. Though in reality, the scheme itself is flawed.
● Solicitation Disguised as Empowerment: Most of these MLM scammers recruit women and term their fraudulent practices as women empowerment. In other cases, they start a cycle of hustling money in the guise of self-employment. All of these practices are nothing more than solicitation, given fancy names to seek validation.
● Destructive on Many Levels: Not only do such schemes affect individuals but also communities and even countries. These scammers engage people in a vicious cycle of recruiting to earn money. When you are unable to do so, you end up losing what little money you initially had.
● Invalidating Other People’s Experience: Once a fraudulent MLM company is confronted, it then turns the tables on you. They have no customer service protocols. Their only go-to solution is to invalidate your experience and argue over how the product worked for so many others—guilt trip 101.
● Discrediting Professionals: All these products and services have a professional line where people with real qualifications and experience in that domain determine what is best. If someone tells you that you can do the same job, a professional can do, then he/she is probably lying.
● Encouraging Leaving Jobs: No matter how monotonous your corporate job may seem, the thing is that it still pays consistently. In addition to that, you get safety and employee benefits. With these MLM scams, people lose all that in hopes of self-employment to find themselves in debt.
How Does The MLM Thing Work
MLMs are legally functioning pyramid schemes. They are only legal until caught. Although they may appear legitimate does not mean they are any less of a scam. Here we have broken down how these MLM scammers work:
Step 1: Approaching
An MLM rep approaches you with a proposition which states that his/her company is a great opportunity for you. They could contact you in person and pitch an idea. In other cases, they might try to convince you over social media.
Step 2: Exclusive Access to Private Information and Gurus
After proposing, they say that you will have the privilege to meet a “famous” mentor or power couple who’s been in the business for years. They will share some confidential information with you (documents, audio files, etc.), but “you have to show that you are worth their time”. It sounds very exclusive and gives you the feeling of a secret community. It is one of the tricks that make this direct selling strategy work in any MLM program.
Step 3: Giving you a Role
Once they have sold their idea to you, and you said yes, you would receive a role like a “Brand Ambassador” or some other fancy term for it. Everyone in the pyramid scam has a title. You are ready to start your product sales career. You may be even invited to a party at someone’s house, where you will meet other mentors and a bunch of other MLM participants.
Step 4: Force you to buy a Preview Pack
You are sold. Now the multilevel marketing company asks you to buy a starter preview pack that they will present at a discounted price. Call it a Preview Pack or an Initial Inventory or whatever you may. This is the point where you start losing money in the MLM business. No doubt at the time you think of it as an investment. They will convince you to sell these products to your close friends and family. Encourage them to further buy such “Preview Packs” from you. It’s part of the business model.
Step 5: Coercion
When they have finally got you hooked to their scheme, now they will pressure you into recruiting your own MLM team. They make it exciting for you, consistently mentioning phrases such as “passive income”, “you now have your own business,” or “be ready for some residual income”. Just get your credit card ready. What they fail to mention is how hard it is to begin with. In addition to that, the recruiting cycle cannot exceed more than 13 cycles before it exceeds the population of the Earth.
All in all, this “business opportunity” is a recipe for disaster. Justifying the scheme based on 1% of the participants that end up with a vast sum of money does not make it legitimate. It only puts the statistics against this scheme.
How They Recruit You
With the world moving towards a digital era, the MLMs have also started utilizing digital platforms. MLMs have existed for quite some time, but their outreach has grown with the widespread use of social media. Here we will discuss some of the common tactics they employ via social media.
1. TikTok: As this video platform has taken over most of the social media, the MLM swindlers quickly moved to promote their scams on TikTok. It is misleading, but when someone calls them out, they do not show basic decency and quick to back talk.
Watch the video below, which sums up the TikTok MLM scheme completely:
2. Cold Messaging: As the name suggests, these messages are scripted and are always worded to coerce you into the scheme. These messages may often come from old acquaintances or even close ones. In either case, it is best to realize the pattern and beware of them.
3. Zoom Call Meetings: This comes when you are a little further into the scheme. These meetings are posted as training sessions. When in reality, they are nothing but coercion techniques.
4. Deceptive Advertisement: Another essential thing to note is that if a company has newspaper and magazine endorsement does not make it legitimate. These companies promote false hope. They cover up their trails under the umbrella of famous magazines and newspapers. Do not let it mislead you.
We have discussed here some of the common routes these scammers take to approach you. But be very conscious that it could be anywhere, may it be Facebook, WhatsApp, Instagram, and whatnot. Any social media or print media platform can be their targeting point. Beware of such tactics and keep yourself and your money safe.
What Can You Do To Avoid MLM Scams?
No amount of preventive measures is ever enough. Still, one must try to keep themselves as safe as possible, especially when you are dwelling in an online business. Here are some of the things you can do to avoid such scams:
● Make Yourself Aware:
Awareness is the primary key to safeguarding yourself and your money. Look up reviews and search it on multiple platforms. You are sure to find different guidance material on how to avoid such scams as the world is becoming more and more aware of their existence. Benefit from what knowledge is already out there.
● Do Your Research:
Do your research when investing in any company. MLMs, no matter how renowned, always have a backlash panel that is there to prevent others from being victimized by such schemes.
Research the company you wish to invest in. As an everyday example, if you want to buy a router, but can’t choose the right company, you may search for a term like Netgear vs Linksys router on Google.
After researching one or two sites from Google, you can make the right decision for your investment. The same should go for every investment you are going to make online.
Look it up online or call your District Attorney General to inquire about the company. You are sure to find your answers. Never invest even if you have a pinch of doubt in the authenticity of a company.
● Use Logical Reasoning:
A bit of logical reasoning can save you from falling prey to a lot of these scams. For instance, you are paying them to be their employee as a new recruit. In addition to that, you get no employee benefits or any guarantee of secure investment. It only appears to be a lose-lose situation.
● Learn From Other’s Experience:
There are a lot of anti-MLM groups that have had first-hand involvement with such scammers and are willing to share their experience. Learn from what they have to say.
What To Do If You Have Been Scammed
As the saying goes, better late than never. Whenever you realize it is a scam and opt-out of it, you are doing yourself a favor. Although you have limited options once you have become a victim to MLM scams. Some of the things you could try are:
● Take Legal Action: You can file a complaint in the Small Claims Court of your area. You will not have to get in the hassle of hiring a lawyer or attending trials in such courts. Also, they are sure to take action on the offense of blatant misinterpretation that is the main tactic the MLMs employ.
● File a Complaint: You always have the option to file a complaint with the Federal Trade Commission. FTC keeps an eye out for all such fraudulent businesses and puts a stop to them. Filing a formal claim against a company will make them look into that business and probably shut it down for good.
● Speak Up: If you have been victimized then you could try to make others aware of this scam to save them the trouble. Take to any platform you feel comfortable with. May it be Facebook, YouTube, Reddit, or any other. Make sure you unmask these scammers before they get their clutches into someone else’s wallet. Feel free to report a company using the Comments section at the bottom of this article.
● Find a Better Option: People get stuck in MLM scams because they are looking for financial solutions. But easy and fast routes are not going to get you to financial stability or a lasting one, at least. Look for better job opportunities or a steady business that is product oriented.
There are plenty of other options available out there like freelance jobs on Upwork, amazon FBA, blogging business & much more. These are all work from home opportunities. Just search how to make money online or Side Hustles on Google, and you will get hundreds of fantastic opportunities for sure.
MLM Scams exist only because they utilize loopholes to get around the law. So do not let anyone convince you that just because this company has been here long enough, it is legitimate. You have nothing to benefit from such schemes apart from being a commission-only sales agent.
A company might even try to sell it to you with the prospect of getting training. Keep in mind that you will be getting training from someone just as inexperienced as you are. So do not get deceived into such scams and steer clear of anything that even slightly indicates one. Have you ever encountered the MLM scam?
MLM Scams and Pyramid Schemes: How To Report Them
Warn your family and friends about the MLM scams and other pyramid schemes by sharing this article on social media using the buttons provided. You can also officially report the scammers to the Federal Trade Commission using the link below:
How To Prevent Identity Theft and More
If you want to be the first to find out the most notorious scams every week, feel free to subscribe to the Scam Detector newsletter here. You’ll receive periodic emails – we promise not to spam. Last but not least, use the Comments section below to expose other scammers.
Verify a website below
Are you just about to make a purchase online? See if the website is legit with our validator: