This from Rhonda Abrams at USA Today:
there's a pretty good chance that sooner or later, a friend or
acquaintance will approach you with a chance to "start your own
business," "be your own boss," "become an independent distributor."
What you'll get is a pitch for a type of
business referred to as multi-level marketing (MLM) – although it may
be called by other names, including network, direct, affiliate, or
matrix marketing. (Because these schemes get such a bad reputation, the
companies change names to make them more attractive.)
Should you try it? After all, you may not have a
lot of other choices, especially if you're out of work. And your friend
is very persuasive. They tell you how much they love the products or
services they sell, how supportive the people in the program are, that
they've made thousands of dollars. They'll offer you a chance to start
your own business for less than $199.
It's going to sound really good. You're going to be tempted. Should you give in to temptation?
In a word: NO. Stop and read this first!
Let me explain how MLM or network marketing works and how it differs from regular sales or a regular business.
•Single-level sales: You go out and sell
a product or service and you either get paid for your time, or more
typically, get a commission on the amount of product or services you
sell directly to customers.
•Multi-level programs: You go out and
recruit other participants. You make money not only on the sales you
make but on the sales of those you recruit.
Sounds great, right? In reality, MLM programs
rank high on the list of fraud schemes, and the Federal Trade
Commission (FTC) and most states' attorney general have warnings and
multiple lawsuits against many MLM programs.
That's one of the reasons that it's so cheap to
get in: Many states regulate "business opportunities" requiring more
than $200-$500 initial investment. To stay under the radar, most MLM
programs keep under that threshold.
Here's what the FTC advises: "If a plan offers
to pay commissions for recruiting new distributors, watch out! Most
states outlaw this practice, which is known as 'pyramiding.' State laws
against pyramiding say that a multilevel marketing plan should only pay
commissions for retail sales of goods or services, not for recruiting