If you have ever searched the Internet for moneymaking sources you have ran across multi-level marketing (MLM). Many people believe MLMs are a great money making source and actually there are many people making a very good income through it. One question many people ask is if multi-level marketing is legal.
In a typical MLM business individuals associate with a parent company as an independent contractor or franchisee and are compensated based on their sales of products or a service and sales achieved by those they recruit into the business under them. Most multi-level marketing organizations put a great emphasis upon recruiting distributors over selling products.
Multi-level marketing has had an image problem due to it is often difficult to distinguish legitimate MLMs from illegal scams such as pyramid and Ponzi schemes. A pyramid scheme is moneymaking process that primarily and in some cases solely on enrolling other people. The Ponzi scheme involves paying abnormally high returns to investors out of money paid by later enrolled investors. Both of these depend highly on the confusion between them and legitimate MLM programs to work.
One reason it is hard for multi-level marketing programs to succeed is it is a legal version of a pyramid scheme. The basic idea behind it is for a salesperson to recruit more salespeople. The people really making the most money is the company owner and the supplier of the products. There are some obvious benefits in MLM membership and that is you are able to take certain tax cuts and you may be able to purchase merchandise you need at far below cost.
In what is considered a more legitimate MLM, commissions are earned only on sales of the company's products and services. If you are considering trying a MLM you should analyze the compensation plan to determine whether you are paid from actual sales to customers and not from recruiting new members.
Compensation plans for multi-level marketing members.
- Unilevel or stair step plan. This is one of the oldest and most commonly used. There are two types of distributors, which are managers and non-managers. There are three types of pay.
- Baseshop overrides- these are a group of managers that receive compensation from their subordinate non-managers, collectively called a baseshop. This is similar to most sales organizations.
Generalized overrides are a group of managers who were previously their subordinate. Most plans pay at least three generations of managers. Executive bonuses are commissions for managers who exceed their sales quota.
- Matrix plans limit the width of each level of a distributors group. This forces strong distributors to spill over their recruits to people who did not sponsor them.
- Binary plans limit the width of each level to two legs. The commission is based on "cycles," where a distributor is paid a fixed amount when both legs achieve a certain number of sales volumes in each leg match.
- Elevator or matrix schemes have a game board or a list on which each distributor pays in one or more product units to participate. When a predetermined number of units have paid in, the structure splits and the earlier participant receives compensation.
In 1979, the Federal Trade Commission (FTC) issued a decision entitled re. Amway Corp that indicated that multi-level marketing is not illegal. In this case, though Amway was found guilty of price fixing because they required independent distributors to sell at the same prices. They also were found guilty of making exaggerated income claims.
A fraudulent MLM scheme can usually be identified by an inflated entrance fee or requiring you to purchase expensive inventories. They often fold quickly when the merchandise cannot be resold; this leaves only the top of the pyramid people without financial loss. The FTC advises potential entrepreneurs that multi-level marketing plans with great incentives for recruiting other people over the sales of products should be looked at carefully.
If you are still considering a multi-level marketing program, these are four things you should look at to be successful.
· A good product · A good marketing structure · A good sponsor · A strong down line
Once you have found a MLM organization with these four qualities it is easy to maintain. All you have to do is keep in contact with the people under you. If everyone follows this, everyone will be a success.
To check on a company, contact your local Better Business Bureau; district attorney or state attorney general's office.
Author: Allen Bell
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