MLM stands for multi-level marketing, which is a type of business model in which a company sells its products or services through a network of independent distributors, who are also incentivized to recruit other distributors to join the network. MLM companies typically pay commissions to their distributors based on their own sales as well as the sales of the distributors they recruit, creating a “downline” of distributors.
MLM companies have been the subject of controversy and criticism, with some people claiming that they are pyramid schemes or scams. A pyramid scheme is a form of investment where each person involved recruits others to join. Money made by the new members funnels up to the higher members. In a pyramid scheme, there is no real product or service being sold, and the main source of income is from recruiting new members rather than selling a legitimate product or service.
Not all MLM companies are scams or pyramid schemes, and some legitimate MLM companies do sell genuine products or services. However, it is important to do your due diligence and research any MLM company before joining or investing in it, to ensure that it is legitimate and that you fully understand how the business model works. Some red flags to watch out for include:
- The company emphasizes recruiting new members rather than selling its products or services.
- The company requires you to purchase a large amount of inventory upfront or to pay high fees to join the company.
- The company makes unrealistic or overly optimistic income claims.
- The company has a poor reputation or has faced legal issues in the past.
By being aware of these red flags and thoroughly researching any MLM company before joining or investing in it, you can help protect yourself from potential scams or pyramid schemes.