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Is This MLM Business Opportunity An Illegal Pyramid Scheme?

Feb 28, 2008
Sorting through the myriad of multilevel marketing opportunities can be difficult. Some are legitimate business opportunities offering great products at great prices. Unfortunately others are questionable, perhaps borderline illegal. In the past, many multilevel business opportunities were little more than pyramid schemes. These illegal programs counted on recruiting others into the system without offering any real product or service. These pyramid schemes eventually came to the attention of law enforcement. Unfortunately unsuspecting people lost millions of dollars before these schemes were shut down. Today it is illegal to operate a pyramid scheme. The issue however, is how to determine whether the business opportunity that you are considering is too good to be true.

In response to scrutiny by law enforcement, many variations of the multilevel marketing plans have been created to disguise the fact that they are only slightly better than an illegal pyramid scheme. Fortunately, there are several indicators of whether a multilevel business opportunity is legitimate. Consider these five questions when determining whether a multilevel business opportunity is legitimate:

1. Are there real products, or services, at reasonable prices?

Many companies offer product sales in an attempt to appear legitimate. Often times these products are either not something that anyone would want or not reasonably priced. If distributors are required to purchase the product in order to be eligible for sales commissions, the opportunity is probably borderline legitimate. If distributors are required to recruit new distributors before being eligible to earn commission, it is questionable. If the only people purchasing the product are new distributors, the opportunity seems highly suspect.

2. Do you have sufficient information to make an informed decision?

Any literature promoting the multilevel business opportunity should contain enough information about the product to allow a reasonable person to make an informed decision. Information to assess the potential for sales of the product should be included. Is the income potential of the business opportunity realistic or does it seem too good to be true? Is the entire pitch focused on how much money a distributor can make? Be wary when you see pictures of sales people in front of fancy cars and mansions. Legitimate businesses are built on their products and services, not their marketing prowess.

3. Is training about the product or service provided?

If the product isn't the main focus of the information you should wonder why. Factors like marketability, competition, and price should be discussed. When looking at a product consider whether you would be interested in buying the product. Does the price seem appropriate, based upon what you know of the product. If you wouldn't want the product, what makes you think that someone else would?

4. Are resources available to help you make sales?

The focus of the company should be on selling their products. To that end, the company should arm their distributors with tools to effectively make sales. If these resources aren't available, you should wonder why.

5. Is recruitment of affiliates or distributors an option or is it required?

Recruiting distributors or affiliates to work under you is common in multilevel organizations, however, it should not be required. If you are required to recruit distributors prior to earning commissions, you should wonder if this is the only way that the company can sell their product. Any company that demands a certain number of recruits before paying commission on your sales seems suspect.

Regardless of whether you use these five questions when evaluating multilevel business opportunities, you need to be careful. If an opportunity seems too good to be true it probably is.
About the Author
Joseph Jester is the owner of FinancialFreedomQuest.com and writes on a variety of home business topics. To learn more Joseph invites you to visit: FinancialFreedomQuest.com
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