Scams and unethical business practices seem to be more common in the network marketing industry than anywhere else.
Everyone is working an angle and even the most diligent recruits have a hard time avoiding network marketing's most common scams.
Every network marketing opportunity should be evaluated on its own merits. However, there are a handful of questionable practices that are rampant throughout the industry – and you need to look closely for them if you are pursuing a network marketing career.
- No products. Strange but true, there are a lot of network marketing companies out there that don't actually sell a product. They sell the promise of phenomenal earnings and ground floor business opportunities, but when it comes down it all they are doing is recruiting new people to join the company – for a fee.
- Emphasis on downline. One of the best ways to evaluate a network marketing business is to watch your sponsor's reaction when you tell him you are more interested in selling the product than recruiting new distributors. If he encourages you to focus on both selling and recruiting, that's fine. But if he goes apoplectic at the idea that you want to focus on the selling the product, it's probably an indication that the company's real emphasis is on distributors, not a legitimate product.
- Exorbitant buy-in. Almost every network marketing company requires an initial investment or buy-in fee. Athough you will have to decide whether they buy-in is worth it, an exorbitant buy-in fee should be a red flag, especially if you aren't getting much in return.
- Inflated prices. The prices of network marketing and MLM products are high because they have to be, given the number of people who receive a cut of each purchase. Since it's difficult to sell products with inflated prices in the real world, some network marketing companies require new recruits to purchase hundreds of dollars in initial inventory. No problem, except for the fact that high-priced inventory will sit in your garage because no one can afford to buy it.
- Ponzi and pyramid schemes. Ponzi and pyramid schemes are illegal. Instead of paying profits that are earned on the sale of products, these scams feature payouts that come from the buy-in fees of new recruits. Eventually the pyramid falls with all but the earliest entrants left high and dry.