How to Not Get Ripped Off in MLM

Although multi-level marketing and direct sales companies are legal, tactics used by many of the companies' sales force are unethical. MLMs are really nothing more than glorified pyramid schemes that promise financial freedom but typically only 1% makes it to that level.

Direct sales opportunities are appealing to so many people, especially women, because they promote an easier, more flexible way of life. They tease women with "benefits" such as fewer hours than a regular job, a flexible schedule, more money, and more time with the kids, and advancement opportunities. In reality, in order to make enough money, those in MLM will often work more hours, spend more time away from their children, and find themselves on a hamster wheel.

It is important to know what questions to ask, and what warning signs to look for, before joining an MLM or direct sales company. Most of these companies lure newcomers in by inviting them to meetings where there is an aura of excitement and people feel pressured to sign on the spot. Many do because they get caught up in the moment or feel as though they can't say "no". This article is to help you know what to look for and to be prepared if you are ever faced in a situation where you might be recruited (most likely, it will happen at one point in your life).

Ask to see proof of distributor's earnings. More than likely, the distributor who is trying to recruit you will show you what someone else, particularly someone who is in the top 1% of the company, is earning. You want to see proof of what a "regular" distributor is earning, not just the few at the top. You will also want to ask to see what the distributor makes on a monthly basis. More than likely the distributor will show you the highest commission/sales check they have received. This can be deceiving because they may have only earned this high amount once or twice during their career with the company. If the distributor is unwilling to do so, or tries to talk around showing you his/her earnings, consider this a red flag and don't sign up.

Ask to see proof of monthly expenses. Along with earnings being inflated, distributors usually underplay the expenses. You will want to see proof of monthly expenses that are incurred. This will give you a true picture of how hard you really have to work and how much you really have to sell and/or recruit in order to make a profit.

Ask for the company's turnover rate of consultants/distributors. If the distributor does not have this information, ask for the telephone number to the corporate headquarters or research the company on the Internet.

Read the agreement completely. It can be very easy to get caught up in the excitement and you may just want to sign without reading fully what you are getting yourself into.

Is the product consumable? I personally do not recommend any type of direct sales or MLM opportunity but if you are going to join, it is best to join one that sells a consumable product. Although your customer turnover rate will still be high, it won't be as high as if you were selling a product that isn't consumable (Longaberger baskets, Pampered Chef, etc.).

How many lawsuits has the company been involved in? Your distributor might not know the answer to this one either but it is important to try and find out what legal battles the company has been involved in. If the MLM company has had several legal issues or lawsuits involving their independent sales force, this should be a huge red flag to you.

Are you going to be asked to purchase inventory? Some direct sales companies, such as Mary Kay, pressure their consultants into purchasing inventory. At the time the marketing plan is shared, this information is barely skimmed over and it is not until the prospect signs up that she finds out she will be pressured into purchasing large amounts of product. Find out right away if you are going to be asked to purchase an inventory. In Mary Kay, the sales force is taught to not talk about this even if asked until the prospect signs their agreement. If they skate around the issue when you ask, you will know that inventory will be something to consider.

Ask for proof of hours worked. Many of these companies will say that it is "full-time pay for part-time work". They are only taking into consideration the actual time it takes to hold a sales presentation. You also need to take into consideration the amount of phone time, preparation time, driving time and delivery time.

Research, research, research. I can't stress this one enough. Do as much research as you possibly can on the company. Ask everyone you know what they think of the particular company in question and utilize the Internet to gain knowledge of the company as well.

Is the market for the product saturated in your area? Is there a distributor everywhere you look in your town? How many distributors are there? You need to find out how saturated the market is for the particular product you could potentially sell.

What percentage of the sales force makes it to a management level? MLM and direct sales companies promote the heck out of the management levels and try to entice people into achieving these positions because the higher you go within the company, the more money they will make. Management positions are glorified and made to look fun and easy but in reality they are not. It is a lot of work and the higher you go, the higher the expenses. You will also have to work more hours.

What are the commissions for recruiting others into the company? Find out how much the company is going to pay you to bring other people into the company. Does the company reward you with prizes and/or career cars? Do you continually need to recruit in order to maintain the level you want?

Are there any quotas? A lot of these companies will tell you that there are no quotas but in reality, most of them have types of quotas. You may have to order a certain amount in order to be considered an "active" member of the sales force. If you want to move up to a management level, you will most definitely have quotas to meet and if you fail to meet these quotas, you can lose your hard-earned position.

If you go into a marketing presentation prepared with these questions, you can save yourself a lot of grief in the long run and potentially save yourself from making a huge mistake.