Monday, 9 December 2019

Multi-Level Marketing and Military Families: How to Spot a Scam

Multi-Level Marketing and Military Families: How to Spot a Scam
12 Nov
3:28

Being a military spouse isn’t an easy job. Non-enlisted spouses deal with difficult realities that many Americans don’t understand, from frequent relocation to defacto single parenting during deployment periods. That makes earning an income while caring for a family — especially one with young children — extremely difficult.

With challenges like these, it’s no wonder the unemployment rate among military spouses is 13%. That’s more than three times as high as the unemployment rate among civilian men and women.

Enter multilevel marketing businesses, or MLMs for short, that promote the opportunity to make money selling products directly to others. On the surface, their flexibility and built-in community may seem like a godsend to military spouses looking to bring in some extra cash. But are they all they’re cracked up to be?

How MLMs work

Besides selling your own products, MLMs involve recruiting others to join your team and sell products to the people in their circles as well. With most MLMs, you get a portion of your team member’s profits when someone joins your sales network. As the process repeats itself and your team members recruit sales networks of their own, you may continue to get a piece of the profit from everyone who signs up underneath you.

You can probably name several MLMs, also called network marketing companies, off the top of your head. There are the classics, like Tupperware, Amway, Avon and Mary Kay, along with newcomers like Beachbody, LuLaRoe and Rodan + Fields.

Yet although MLMs have been around for decades (or centuries — Avon was founded in 1886), they’re often a poor investment of your time and money. An AARP Foundation study reveals that 74% of people reported making no money or losing money as a result of their involvement with an MLM. (Investing your cash in a high-yield online savings account would actually be a safer bet, statistically.)

Why MLMs are so popular with military families

Military families in particular are often targeted by direct-selling consultants. Sometimes, this comes from a genuine desire to help military families that are looking for an additional source of income, suggested Anthony Kirlew, financial coach at Fiscally Sound.

Yet others believe the intentions of MLM recruiters may be more sinister. “Military wives are an easy target [for MLMs],” said Melissa Blevins, founder of Perfection Hangover, a small business website geared toward women, “because they’re seeking community, purpose and ways to stay busy and make money while their husbands are deployed.”

MLM recruiters often approach women (military wives or otherwise) with promises to solve the problems they’re facing. For example, a recruiter may show you a flexible way to earn extra cash (often lots of it) with a work schedule that fits your busy life. Plus, if you move, you don’t have to start over. You can take your direct-selling business with you.

The targeting of military families has a lot to do with the transient nature of military service, said Peter Marinello, vice president of the Direct Selling Self-Regulatory Council for Better Business Bureau (BBB) National Programs. “I think the military community is very vulnerable to direct-selling opportunities and a lot of different kinds of scams.”

This frequent relocation can also lead to loneliness among military spouses, and MLMs offer to help those who are seeking new friendships. But Blevins, who had her own negative experience selling for Beachbody, warned the friendships you make when you join an MLM may not last once you stop participating, and you run the risk of losing your existing friends if you start bombarding them with sales pitches.

The difference between a legitimate opportunity and a scam

You’ll find people who are superfans of multilevel marketing programs and others who despise MLMs as a whole. Perhaps the truth lies somewhere between these two extremes.

Marinello confirmed, “There are a lot of good MLM opportunities out there. They are not all scams.” But they require due diligence before signing up. To properly vet an MLM, Marinello suggests reading income disclosures to “see who’s making money [and] at what level.” You should also review compensation plans and rely on outside resources to help shape your decision.

If you want to learn more about a specific direct selling organization, the following ideas may help:

  • Check with your state attorney general for complaints before signing up for any networking marketing opportunity.
  • Search online to see if any lawsuits have been filed against an MLM before joining — such as the FTC’s settlement with Herbalife or the more recent lawsuit brought against LuLaRoe by the Washington state attorney general.
  • Talk to former consultants or search online for the opinions of people who once joined a particular MLM but ultimately left.
  • The BBB Institute for Marketplace Trust sponsors the Military & Veterans Initiative — a program designed to help veterans, servicemembers and their families avoid scams.
  • The Direct Selling Self-Regulatory Council (DSSRC), a collaboration between the BBB and the Direct Selling Association (DSA), is another solid resource to use when vetting MLMs.

How to spot a pyramid scheme

Some MLMs are pyramid schemes in disguise. A pyramid scheme may look like a legitimate network marketing opportunity on the outside. But there are key distinctions that could waste both your time and your money if you fall for it.

  • You don’t earn money by selling a legitimate product or service.
  • You’re trained to focus primarily on recruiting new team members underneath you.
  • Financial statements from the company either (a) are not available or (b) show that the MLM earns most of its money from recruitment instead of sales.
  • The commissions you earn come primarily from money paid by new team members themselves, not outside sales.

Working for an MLM is not a quick fix to your financial struggles

The reality doesn’t always live up to the hype where MLMs are concerned. Some MLM participants are quick to over-promise your chances of success in an effort to add a new team member to their network.

In reality, most people who join MLMs don’t earn the enormous sums of money often advertised by salespeople. AARP’s study found that nearly 21 million Americans have participated in an MLM. Yet only 7% earned over $10,000. Fewer than 1% earned more than $100,000.

Even those who do manage to make some money through MLMs may have to work much harder to earn that income when compared with other jobs. A MagnifyMoney survey finds that the vast majority of multilevel marketing participants earn less than 70 cents an hour.

Kirlew also advised approaching MLMs with the right mindset. “While MLM’s are pitched as a great way to earn extra income, people should know it’s not like a part-time job, but rather a part-time business.”

“If someone has a need for immediate income,” he continued, “I would recommend a part-time job and not an MLM.”

Most businesses don’t succeed — including MLMs — Kirlew pointed out. “The extra added pressure of trying to meet short-term financial goals is usually not a good combination with starting a new business.”

If you’re already in debt because of an MLM investment or other financial missteps, there are a number of tools you can use to improve your situation. This guide detailing financial resources for veterans in debt is a great place to start.

Seven red flags to look for before joining a multilevel marketing team

  1. Beware of MLMs that require a hefty buy-in. If you’re asked to put up a large upfront amount to join, Kirlew said it could be a sign of a scam.
  2. An aggressive sign-up pitch is cause for concern. Kirlew advised looking out for “high-pressure sales tactics to get you to sign up” when you’re considering an MLM. If someone tells you to “act now” or lose out on an opportunity, you should probably walk away.
  3. Proceed with caution if a company won’t buy back unused products. If you purchase product to stock your inventory and don’t sell it all, some MLMs offer to buy your unused product back. Mary Kay, for example, will repurchase product at 90% of the original cost for up to one year after purchase. MLMs that won’t rebuy your unused products should be avoided.
  4. Watch out for companies that require you to continue purchasing inventory after your sign up. The Federal Trade Commission (FTC) warns if you have to buy more products than you can sell in order to stay active in an MLM, you should hang on to your money.
  5. When an MLM focuses on recruitment, not sales, it could be a sign of trouble. Marinello said, “Anytime you hear a sales pitch that’s recruitment heavy and not focused on selling the product, I’d be very wary.”
  6. If a company promises a huge return on your investment, be on guard. Extravagant income claims made by a salesperson, particularly in the social media space, may be a warning sign, Marinello advised.
  7. You should also be on guard if an MLM company promises “miracle cures” for buyers. The FTC recommends avoiding any companies that make claims of “miracle ingredients” or “guaranteed results” where health products are concerned.

The bottom line

While some MLMs may offer the flexibility and community military spouses crave, don’t make any rash decisions and do your homework. Kirlew also advised that you trust your gut instincts before signing up.

“If something doesn’t feel right,” Kirlew said, “it is either not right or not right for you.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Michelle Black

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Source: https://www.magnifymoney.com/blog/news/multi-level-marketing-military-families/

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