What is a multilevel marketing plan?
Earn extra cash. Work for yourself. These phrases could be appealing to a lot of people, but when you hear them should you be skeptical?
Multilevel or network marketing plans are a way of selling goods or services through distributors and they typically promise that if you sign up as a distributor you will receive commissions for your sales and those of the people you recruit to become distributors.
Glenn Muske, Oklahoma State University Cooperative Extension interim associate dean, assistant director, family and consumer sciences, said some multilevel marketing plans are legitimate, but some are illegal pyramid schemes.
"The majority of participants who join a pyramid lose money to pay for the rewards," Muske said. "Most people end up with nothing to show for their money except marketing materials or expensive products they buy."
If you are thinking about joining a multilevel marketing plan, Muske suggests taking the time to learn about the plan and offers these tips:
Learn the company's track record.
What products does it sell?
Are their products sold to the public at large?
Is there proof to back up the claims the company makes about its product?
Are the product's price marked competitively?
Will the product apply to a large consumer base?
What is the cost of investing?
Are there minimum monthly sales commitments in order to earn a commission?
In order to earn your commission, are you required to recruit new distributors?
"With the most legitimate multilevel marketing companies the commissions are earned only on sales of the company's services or products," he said. "If participants are paid mostly from money received from new recruits or are required to buy more product than they will sell, the company may be a pyramid or Ponzi scheme. These are illegal in most countries."
If you become a distributor, you are legally responsible for the claims you make about the company, product and the opportunities the business offers.
The Federal Trades Commission advises those who are interested in a multilevel marketing plan to verify the research behind any claims about the product's performance before repeating those claims to a potential customer.
Muske said if you seek new distributors, you are responsible for the claims you make about the potential earnings. In addition, be sure to represent the opportunity honestly and stay away from making unrealistic promises.
"Use common sense when evaluating opportunities in multilevel marketing," Muske said. "The FTC provides consumer information to prevent fraudulent, deceptive and unfair business practices in the marketplace. You can visit their Web site to file a complaint or get free information on consumer issues. The Better Business Bureau is also a source of information as you check out these opportunities."
The FTC can be contacted online at www.ftc.gov or call 1-877-382-4357.