What is an MLM Scam?


Before we discuss what an MLM Scam is you should know what a scam is.  A definition of a scam is defined as a fraudulent or deceptive acts or operation. The different type of scams that exist are:

  • Bank Scam
  • Ticket Scam
  • Pyramid Scam
  • Investment Scam
  • Ponzi Scam
  • Charity Scam
  • Telephone Scam
  • Government Grant Scam
  • Mortgage Scam

The particular scam we will pay attention to is Pyramid because they are disguised as MLM opportunities making it's hard to tell the difference.


Pyramid Scams depend on recruiting people. However the big difference between a Legit MLM Company and Pyramids schemes are the way it operates.

The purpose of the pyramid scam is to  move MONEY through different levels of the people they recruit.


The purpose of an MLM company is to move PRODUCT to potential customers.

However, the reason Independent Representatives show their opportunity to others in an MLM is because the more people that are introduced to the opportunity, the more product is sold.



Difference Between an MLM Scam and a Pyramid Scam

MLM (Network Marketing) companies aren't pyramid scams.  Pyramid Scams are similar to chain letters where the letter will say something like:

“ . . . send this to 10 people and you WILL receive this in return”.

A pyramid scam would tell you to go out and recruit 10 people to give you $50.  Then tell those 10 people to get their 10 and give them $50.  All the while, there's no products being bought.

Some pyramids have been getting smart and are starting to disguise non-tangible items as products, thus appearing to be MLM companies . . . but they are MLM scams

For example, a pyramid scheme would have you go out and get 10 people and make it a requirement that those 10 people pay a certain price for overpriced products that are already saturated in the marketplace (or have they pay for something similar to a welcome kit that has no real value)

picture from Amandalla Newspaper


Legit MLM companies would have you EARN (not give) your money based on your sales to the public.



How To Determine an MLM Scam

If you aren’t sure if a certain organization is a legit multilevel marketing company or a pyramid scheme here are some bullet points to make it clear if it is a scam:

  • If the emphasis of the company is more on recruitment than selling product
  • If the company focuses on making fast profits and getting money from signing people up
  • If the company does not buy back inventory that was sold to you
  • If they only offer commissions for recruiting new members
  • If there's no attention paid to the Target market of The products that you are selling

If any of the above activities are happening, most likely that company may find itself in trouble in the near future. You may want to take a closer look at the company because most likely it may be deemed an mlm scam.

Get documents from the company outlining their future objectives and goals as well as their plans for achieving them.  Determine what the company's products are and if the product is actually being sold to a target market.



Credentials To Look For

Some people may look at MLM opportunities then say they want to do research in fear that it may be an MLM scam.

What they do next is go home and go straight to the Google search engine and read someone's opinions. They look for search engine results with the words complaint, scam, or review in the title. The problem is with the validity of those people writing those reports or comments.

You may read someone's opinions who are biased or onesided and not considered dependable

If you want to do your due diligence, go to the reputable organizations such as the Better Business Bureau, Inc. 5000, or Fortune magazines to confirm the companies legitimacy.

The Federal Trade Commission was also put in place for consumer protection under that law to specifically determine which businesses are legal


More things you may want to look for in an mlm company is:

  • Their track record for customer satisfaction
  • The life of the company and how long they've been in business
  • Have they been sued in the past and for what
  • Is there a class action lawsuit against them and why
  • Do they have  a corporate headquarters and customer service contact with actual human beings that's work there



The Reason WHY People Call Legit MLM Companies Scams

The GOOD thing about MLM is:

. . . you can do the business whenever you want and however you want.

But the BAD thing about MLM is also that:

. . . you can do the business whenever you want and however you want.


When an MLM company says, “you are are in business for yourself”  they meant you're in it for yourself to work it full-time, part-time OR in you spare-time.

But when they say you're not in it by yourself, this means that you have an upline support system to show you the right way by following rules and regulations of the company so you can represent them with integrity.


The reason why most MLM companies get a bad reputation is because of the representatives.  Look at the root word of representatives (represent).

MLM companies are legit, however you have people who join a good company with bad intentions who represent the company in a bad way. Representatives get desperate and tell people false accusations such as:

  • “You can retire in two months”
  • “We can make $10,000 in four weeks”
  • “All you have to do is get three people and I'll do all the work for you”
  • “Give me $300 and get the people to give you $300 and you'll get a bonus”

There has even been representatives that charge people to show up to training and pocket the money to go to the mall to spend on material items.

If you are an independent distributor or a representative, make sure you represent the company with integrity and honesty.  If you don't know something about the company ask the proper authorities and get the correct answer.

If someone else is showing you the opportunity you can always ask them questions about the company or about themselves to determine if you would feel comfortable working with them or not. Examples of questions you can ask the representative are:

  • How much product have they sold to customers
  • Do they sell product to distributors only
  • How long have they been in the business
  • What are the annual sales of the products
  • Who is their Upline
  • Do they use the product and how often
  • Is it mandatory to buy to the product

Their answers to these questions can determine the validity of the company and help you determine if it's an mlm scam or not.


The Bottom Line

The bottom line is if you decide to join an MLM company, and they:

  • Make it a mandatory requirement for you to buy a product
  • Make you do more recruiting than selling
  • ONLY pay you when you recruit
  • . . . Or have you do more selling to other distributors than the actual public

. . . most likely you may be looking at an MLM scam


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