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For the self employed, navigating the topic of multi level marketing business opportunities can be a tricky one. Although many multi level marketing companies are legitimate and can be a good way to make money, there are others out there that cost you both financially and legally. How can you tell the difference? There are two major red flags to watch out for when it comes to multi level marketing, and if you can keep an eye out for them, you will be able to effectively protect yourself from the scammers.
First things first, however: what is multi level marketing? In many ways, multi level marketing is a lot like the franchise set up that many of your favorite chain restaurants operate under. The difference is that rather than being limited to a single location, representatives of a multi level company perform sales on a roving basis – they move around and sell any place they can, rather than setting up a single shop. These representatives, also often called "down stream reps," buy products from the parent company and then sell them on to stores or private individuals. The exact nature of the financial arrangement between the parent company and the down stream rep can differ from group to group, but usually there is a profit split on a pre-determined percentage basis. There is usually also some incentive for down stream reps to recruit new down stream reps, and they often receive a percentage of the sales made by anyone they recruit.
It is this last part of multi level marketing companies that can be the first red flag. Although most multi level companies do provide this kind of recruitment incentive, some companies rely exclusively on recruitment to make money. Down stream reps recruit new representatives, and collect a joining fee from them (or collect money by selling them merchandise that they are supposed to then sell on), and then no actual selling of products happens. The whole business thrives on the recruitment of new members and the collection of membership fees. This is called a pyramid scam, and it is illegal. If you are investigating a company and it seems like you are unlikely to make any money from actual product sales, stay away.
The second red flag has to do with the product prices you get from the parent company. Some scammers set themselves up as a multi level marketing business and present products to their downstream reps at prices that would never allow them to clear a profit. If the prices you are being offered by the parent company are extremely high, and you doubt that you will be able to mark up the prices at all to resale the goods, you've likely stumbled on a scam. These scammers typically collect all the money they can from people – often not even delivering the goods that their "reps" purchase from them – and then they close up shop and disappear, usually reappearing under a new name a few weeks later to perpetrate the scam again. Essentially, multi level marketing is a business like any other, and if it sounds too good to be true, it probably is.
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