You’ve been approached by a friend or family member to join a multi-level marketing company. You usually trust the judgement of this person, but you’ve also heard that MLMs are scams that usually result in distributors making very little money (if any money at all). Is this an opportunity worth exploring? In this blog, we pose 5 questions to help you understand whether that new MLM opportunity is right for you.
How Much Money are Distributors Really Making?
One of the first things to consider are any income claims or opportunities that are being pitched. According to the FTC, just about any income claim is illegal without a disclosure about what exactly that income is. If the person pitching you on the MLM opportunity says that they have made “life-changing” money, then they are legally required to tell you what exactly that means and provide proof. Any kind of deception around income claims should be a red flag.
If the MLM you are considering joining has gone public, ask for an income disclosure statement. All public MLMs are required by law to publish these reports yearly, so either ask your distributor to share them with you, or you can easily find them online with a simple Google search. Income disclosure statements include information about how much money their distributors are actually making. In our MLM reviews, we always make sure to include these for public companies as well.
Have the Products Been Tested or Certified by 3rd Party Organizations?
This question applies to MLMs that make any kind of health claims. There are a host of MLM companies that encourage their distributors to tout the health benefits of their products, while including small fine print on their website that acknowledges that no official testing has been done to verify these claims (see Pruvit as an example). This allows the company to both informally encourage their distributors to make untrue health claims while absolving themselves of any regulatory issues. If the claims that your friend is making sound too good to be true, and the official website or product labels dismiss any provable health benefits, then you should be cautious about joining the MLM. Claims could include:
- Lose weight
- Gain energy
- Improve gut health
- Increase metabolism
- Burn fat
- Reduce hair loss
- Reduce wrinkles
Who are the Leaders of the MLM?
All companies are extensions of their leaders. When evaluating an MLM, it’s important to get information on who the founders and leaders of the organization are so you can get a better understanding of the culture and principles that drive the company. You might want to ask questions like:
- Have any of the company’s leaders been fined or punished by the SEC or FTC?
- Which MLMs have the leaders been a part of in the past, or are currently a part of?
- Have any of the company’s leaders founded MLMs that have gone bankrupt?
Understandably, your recruiter will probably balk at these questions, if they even know the answers to them. If you aren’t able to get answers from your recruiter, a quick google search can often help.
Are a Majority of Sales Coming From Distributors or Consumers Not Affiliated With the MLM?
Early on in a recruitment, you will probably hear about how important the product is for consumers and the massive sales growth the company has achieved. However, after asking the above questions, you may start hearing more about how this MLM is less about improving health and more about a business opportunity. This should set off your internal alarm system because what that means is that the company is surviving more on sales generated by distributors, rather than sales generated by the largest public. In many MLMs, distributors end up being the core customers because they are unable to sell off product and instead consume it themselves (or hand them out for free to friends and family). Before joining an MLM, always ask about the breakdown of sales being generated by consumers vs. distributors.
What is the Average Lifespan of a Distributor?
The final question to ask your recruiter is what the average lifespan of a distributor is for the MLM company they represent. According to various studies, the average MLM distributor lasts less than a year before they realize that the “opportunity” wasn’t what they thought it was. It’s important to understand the lifespan of this particular MLM because generally there is a substantial upfront cost to joining multi-level marketing companies, and it will take a lot of time and work to make that investment pay off.