Sidestepping a Definite No-No: The Pyramid Scheme
FINDING THE RIGHT COMPANY
By Jeffrey A. Babener
Excerpted from Network Marketing: What You Should Know, Jeffrey Babener, Legaline Publications
MLM/DIRECT SALES consultant practice tips. MLM/DIRECT SALES Legal and MLM/MLMLegal.com and Babener and Associates provides expert MLM/DIRECT SALES Consultant and MLM/DIRECT SALES Consulting advise on MLM/DIRECT SALES corporate, MLM/DIRECT SALES software, MLM/DIRECT SALES Compensation, MLM/DIRECT SALES Taxes, etc. MLM/DIRECT SALES Consulting is an important component for MLM/DIRECT SALES startup. Careful Choice of MLM/DIRECT SALES Software is another component of MLM/DIRECT SALES Corporate. An MLM/DIRECT SALES Consultant and MLM/DIRECT SALES Law and MLM/DIRECT SALES Legal is part of the MLM/DIRECT SALES Startup Team. MLM/DIRECT SALES Compensation must be reviewed by an MLM/DIRECT SALES Consulting standpoint by an MLM/DIRECT SALES Consultant and MLM/DIRECT SALES Legal and MLM/DIRECT SALES Law professional and programmed by a MLM/DIRECT SALES Software and MLM/DIRECT SALES Technology provider.
The network marketing industry has come a long way in the last few decades in its efforts to steer clear of anything that could be even remotely construed as an illegal pyramid scheme. But pyramids are like weeds - they keep popping up here and there. Some do a good job disguising themselves as legal, reputable network marketing companies. Don't be fooled!
The last thing you want to do is become part of a multilevel marketing system that is, in reality, an illegal pyramid scheme. According to the Direct Selling Education Foundation, a pyramid scheme is an illegal scam "in which large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for a chance to advance to the top and profit from payments of others who might join later."
Network marketing companies and pyramids both have multilevel payment systems, but that is where the similarity ends. Network marketing is a legal, ethical manner of doing business. Pyramids are illegal, fraudulent con games. In network marketing, you are a legitimate seller of a product or service and business opportunity. In a pyramid scheme, you are a crook.
But how can you tell them apart?
There is no single authority on this subject. State and federal authorities have different ways of looking at the issue. However, there are certain "red flags" that can cause law-enforcement agencies to investigate. These flags can also help you steer clear of these illegal scams:
Promotions where the business opportunity is the product.
If no legitimate product or service is being sold, but only the opportunity itself, chances are that it's a pyramid scheme.
Products that are sold at inflated prices.
Pyramid promoters sometimes try to mask their true intentions by selling a product. Often, the product will be vastly over-priced, and unlikely to generate much retail activity. This is a sure tip-off that the real "product" being sold is the compensation opportunity.
Programs that require inventory "loading."
A legitimate network marketing opportunity doesn't require you to buy unreasonable amounts of inventory to launch your business.
Programs that require substantial initial cash investments.
Many states consider $500 or more to be a "substantial" up-front investment. A multilevel company requiring such an investment is likely to attract the attention of law enforcement agencies.
Programs that require the mandatory purchase of peripheral or accessory products or services.
Some pyramids seek to hide their true face by charging a minimum price for a "start-up" kit, but then compel the participant to buy more expensive items such as training or demonstration materials. Legitimate network marketing companies sell their business start-up kits and selling aids at their cost, or just slightly over their cost.
Companies that don't "buy back."
Any company that does not agree in writing to repurchase a reasonable percentage of unsold inventory or unused sales materials from its distributors for a stated time after purchase should be avoided. This is often a sign of a pyramid scheme.
Programs that pay fees for recruiting.
A legitimate network marketing company bases compensation on product sales - not recruiting. If money is paid for signing up new distributors rather than for product sales, the business is likely to be a pyramid.
Recruiters who misrepresent earnings.
If the opportunity is sold as a "get-rich-quick"scheme, beware! The only people who do well in such companies are those who can sucker others into buying into a criminal confidence game.
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