10 Warning Signs That Multi-Level Marketing Biz Is a Scam

You've heard from them before. They slide into your Instagram direct messages and reach out to you on Facebook. Sometimes they'll catch you in person and start chatting you up with lines like, "Want to know how I earned $300,000 in my first year?" or "You can earn a minimum of $10,000 in a month!" or "Want to earn a passive income while you travel the world?" They convince you to reach out to talk more about how, together, you can create an empire and make more money than you'd ever fathomed you could.

These propositions sound super enticing, so you inquire a bit further. The job seems super simple: You sell the revolutionary product, you get more people to sell the product, too, and you make the big bucks. Easy, right?

What you're walking into is actually known as MLM — multi-level-marketing. While some people really earn lucrative pay working for MLM companies, some of these MLM companies are total scams. You've probably heard the term "pyramid scheme" before, right? Yup. That's what we're talking about here.

Here's everything you need to know about what MLMs (and MLM scams) are, how they work, and the red flags that you're facing an MLM scam.

MLM refers to multi-level-marketing. An MLM is a multi-level-marketing business model or marketing strategy that is based on a pyramid system. A distributor sells a product and earns a commission from their sales of that product; they also earn a percentage of the commission from the sales of those who they recruit to sell the product (their "downline"). So, the more people they recruit to sell the product, the more money they can make without, technically, having to do anything at all. Once they build up a big enough downline and the people beneath them are selling more and more product, they can earn an income solely from those sales, without having to really sell any products of their own (unless the company requires that they meet a minimum quota).

Basically, MLM companies build up their salesforces by recruiting independent distributors to get out there and sell the product with the motivation that, the more they sell and the more they lure others in to sell, too, the more they can make.

This differs from traditional marketing strategies because the supply chain is simply longer. Usually, a product would move from the manufacturer to the distributor to the wholesaler to the retailer to the consumer. With MLM companies, however, the product moves directly from the manufacturer to the distributor to the consumer, and that's it.

Some people find the opportunity to join an MLM company really enticing and can often make good money getting involved.

But others, of course, are wary of scams. As they should be! Because MLM scams do exist.

Here's the thing: MLM is a legitimate marketing strategy that's actually a pretty sound plan that'll cost the company a whole lot less on marketing efforts than a traditional company would spend. The ethics, however, are questionable at times...

An MLM company can become a pyramid scheme under certain circumstances. In a pyramid scheme, members have to pay a fee in order to join. Eventually, a portion of the money is given back when they bring a new member into the scheme, and the more people they bring, the more money they can make. There are no products involved. This means that you'd earn your income at the expense of another person who has to pay a fee to join, which is what makes pyramid schemes, well, schemes. 

But MLMs actually sell products to generate revenue the really does create a sustainable system for everyone involved.

How do you know if you're getting involved in a scam or if the opportunity knocking at your door is a legitimate one? Here are 10 red flags that you shouldn't take the job.

If the company is pushing the recruitment of new distributors over the actual sale of products (because there are none!), this could be a sign that it's a scheme. They might phrase it as the importance of building a "team," but be warned that if they care less about making sales, it's probably because the sales don't matter. And if sales don't matter for a company, it's probably because it's a scam.

Likewise, if there are products but they are low-quality products, beware that the company is a scam. If they truly want to sell products, they'll know that the quality of their products is important. And if the quality is so low that it'll take a toll on your sales — and that won't even matter to the company — this is a red flag that the company is a pyramid scheme.

Maybe the company calls its products "revolutionary" or "game-changing" or other outlandish adjectives. If they're suggesting that their products are miracle workers, be warned that this is a scam. After all, a reputable company sells quality products that do the talking for themselves. They don't need to overhype them.

If the company is trying to convince you to stock up on the product to have on hand to sell, this is a red flag. While it's wise to have a few products to show customers, you never want to stock up on inventory yourself unless you know for a fact that you're going to sell the products. The company should hold onto the inventory — not you.

If you have to pay a fee to join the program, the chances are that it's a scam. You shouldn't have to pay to work; work should pay you. Whenever there is a joining fee, even with the promise of earning that money back, be skeptical.

Likewise, if you're constantly making investments in this job, it should be taken as a red flag. While you might have to undergo training, and you might choose to pay for classes to help you on your own time, the company shouldn't be requiring you to spend a ton of money to work for them.

If the person recruiting you is making serious claims about the kind of money you can make, be wary. While you might be able to earn $10,000 in a month, the chances of that actually happening off the bat are slim. And it's certainly not guaranteed; in fact, no sales job that's based on commissions can guarantee the money you'll make. So if the recruiter tries to guarantee it, know that the company is likely a scam.

Pyramid schemes will throw a lot of jargon around. It sounds nice and simple. But, when it comes to answering your tough questions, they may freeze and not know what to say. If the company can't answer your questions or they throw more flowery business jargon at you, take it as a clear sign that it's a scam.

If the recruiter interviewing you spends more time talking about how much money you can make and how great it is to fit into a team that shares the same goal — and cares less about your actual skills and experiences — this may be because they're trying to sell you on the MLM scam. Be conscious of how the interview flows, and ask questions.

If you're getting the feeling that something isn't right, the chances are that something isn't right. Always trust your intuition. Negative vibes from a company or a recruiter — regardless of whether or not that company is actually an MLM scam — means that you're probably not going to want to work for them anyway. Save yourself the stress down the line and keep job hunting elsewhere.

Wondering if an MLM is right for you? So long as it's not a scam, an MLM might very well be a good kind of company for you! If you've got the time on your hands to sell products and recruit others to do the same, you could make a great fit for an MLM company.

Likewise, if you're a natural salesperson, you might do well in an MLM company. When you work for a traditional retailer in a salaried position, your income isn't directly affected by the sales you make that day. But when you work for an MLM company, your income is, in fact, directly affected by the sales you make. So you need to have strong sales skills in order to actually make a pretty penny. And you're not only selling the product; you're also selling the gig to other distributors.

If you want to earn an extra income, an MLM company could also be a good route to go. While all of the aforementioned red flags pose a risk of diving in headfirst, you can always dabble with an MLM company to see if you can earn some pocket change on the side. After all, if the income is as passive as the company promises, then it shouldn't take too much extra time of yours to get and stay involved — so you can, hopefully, do it as a side hustle while you get your feet wet and determine if it's the right full-time path for you.

If, however, you really don't have too much time on your hands to chat with customers and prospective distributors, and you're not necessarily a natural salesperson, an MLM company is not going to be for you. If you don't handle the stress of being directly responsible for how much money you make, it's best that you work for a company that'll pay you for doing a job, not selling a product for a commission.

So rest assured that not all MLM companies are scams but, unfortunately, many are! Beware of the red flags and do your homework so you can decide whether or not an opportunity at an MLM company is right for you.