A lot of people are weary of opportunities today. There are so many stories about scams on Craigslist, spam on Facebook and get rich quick schemes that we often run at any sign of "too good to be true."
But what if within all this skepticism some of those things we thought were "too good to be true" actually were true?
Sadly many people won't take the time to educate themselves on how to spot a scam so they often run from legit opportunity and sometimes wind straight up in a scam they didn't know existed!
Today's post is about practical ways to spot a network pyramid scheme from a legitimate direct sales business.
Pyramid schemes were deemed illegal by the Federal Trades Commission. They are essentially a scam where a con artist recruits unaware innocents and sometimes aware partners in crime to buy in to a business that doesn't actually offer a product. Sometimes the company appears to offer a service and so they hide under the radar. For example A recent company was shut down for posing as a legitimate network marketing company. They offered "exclusive" access to premium websites. They charged a monthly membership fee and a sign up fee for customers and sellers to access special websites. After a person signs up they can make money by signing others up underneath, hence the pyramid structure. The problem is the service was not legitimate. It really only gave links to sites that were already free. The company made its money, not from making a legitimate product for the marketplace, but by preying on people who wanted to work from home and charging them sign up fees. They were recently shut down.
Don't throw the baby out !
This kind of story can scare people who know very little about direct sales. But too often we throw the baby out with the bathwater. Just because a company with a pyramid structure or a network marketing facade was working illegally, doesn't mean all similar companies are.
Plenty of businesses run on a pyramid structure and have monthly membership or entry fees. For example the average corporate structure involves a CEO at the top, followed by several directors getting a slightly smaller income who oversee district managers, who manage local managers and then employees. It's the pyramid structure and its very stable.
Also Gyms, Netflix and a plethora of other services thrive on monthly membership and entry fees. The problem isn't with the structure the company uses or the way they recruit, but rather what they are recruiting to or for.
So How to spot a good Direct Sales or Network Marketing company from a pyramid scheme?
The first test is does the company sell a legitimate product?
At Seacret direct for example, our product sold in the malls for about 6 years before we switched to direct sales. So all customers and agents alike know that they are standing behind a legitimate product. The product has never been hidden from the public eye or downplayed, it's where we started and how we thrive. Legitimate businesses don't make money by people buying into air, but rather buying in to a product or legitimate service .
Is the company paying compensation majorly for product sales or for agent sign ups ?
Where does the majority of the companies income come from?
For example if a company charges a very high sign up fee just to sell their product or service, such as $150 or more, thats a good sign that the company isn't very good about earning money straight from the product/service. Many companies will include product in the sign up fee or offer extra kits of products when you join. This may make the starting cost higher and thats completely fine, because you are exchanging it for a legitimate item. But to charge a $400 sign up fee with no product involved just means the company wants to make money by signing up distributors and that's not a good sign. It doesn't necessarily make them a pyramid scheme, but maybe a less ethical company. Be careful. A legitimate direct sales company makes money off the volume of product sales, not the volume of sign ups. There may be a bonus for enlisting new sellers, but the intent is always in order to sell more product not sell selling.
Does the company convince you to maintain or purchase a large inventory or do they allow you to build slowly?
Some pyramid schemes involve a useless or small valued product that they convince new recruits to buy in large amounts. Their aim is to make a fast and huge amount of cash on each rep knowing the person probably won't sell it all. This is called "inventory loading". Legitimate companies are required to buy by 90% of inventory that doesn't sell up to a years time from the purchase. However, most companies offer ways to sell through catalogs or online where products go straight to the customer and never have to be seen or delivered by the seller or agent.
Those are the 3 biggest areas that will help you to recognize a pyramid scheme. Unfortunately because of the dishonesty of some, a lot of good, honest companies that provide quality products and services have been scrutinized and even mislabeled by the public. Hopefully by educating yourself on the differences you can be able to avoid scams and safely benefit from the quality products or lifestyle network marketing and direct sales has to offer.
For more information check out the Direct Selling Association article at :
http://www.dsa.org/ethics/legitimatecompanies.pdf
Another super resource is this wiki how article on specifics of spotting a scam
http://m.wikihow.com/Distinguish-Between-a-Pyramid-Scheme-and-Multi-Level-Marketing
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