Multi-Level Marketing (MLM) is a business model where participants earn money not only from the sales of the products they personally sell but also from the sales of the other participants they recruit into the company. Some MLMs are legitimate business operations, but others are scams, or pyramid schemes, which are illegal in many countries, including the US. Pyramid schemes are characterized by a focus on recruitment over actual product sales, and they typically collapse as new participant recruitment slows down.
In an MLM scam or a pyramid scheme, individuals at the top of the hierarchy typically make money from the recruitment of new participants, who then make money from recruiting still more participants, and so on. This creates a downward flow of money, with the vast majority of participants losing money.
People can get scammed in MLM scams and pyramid schemes in several ways. For example:
Investment scam: Participants may be asked to pay an upfront fee to join the company or purchase a large quantity of overpriced products.
Recruitment scam: Participants may be promised high earnings from recruitment, but in reality, they only earn money if they can recruit others to join and do the same.
Product scam: The products offered may be of low quality or overpriced, making them difficult to sell.
It is important to thoroughly research any business opportunity, including MLMs, before participating. Red flags to watch for include promises of easy income or quick riches, a focus on recruitment over product sales, and the requirement to purchase a large quantity of products upfront.
