Pros and Cons of Direct Sales Business, Part IV: How to Spot an MLM Scam

“It’s a pyramid scheme!” How many times have you heard someone say that about an MLM or direct sales opportunity?

While it is true that MLM or direct sales may be called pyramid marketing, it is not true that all MLM or direct sales companies are a scam. There are many legitimate direct sales business opportunities available. The trick is to spot the legitimate opportunities from the MLM scams.

Having some questions in her head . Mixed media

MLM Scams: How to Spot Trouble with Direct Sales Businesses

While there are many legitimate MLM or direct sales businesses, there are also scams out there. Telltale signs of a possible MLM fraud or scam are:

  1. Poor quality products or services: A cursory online search may reveal a plethora of complaints against a company’s products or service. NEVER buy into an MLM business if you’ve never actually used, touched, or seen their products. Passion for the products is important and if you aren’t a current user of the products how can you vouch for the quality?
  2. Intense pressure to buy inventory: A good MLM company does not pressure you into filling your garage with products. They are willing to drop ship to your customers from a central warehouse. Intense pressure to buy products for resale is a sign of a possible fraud.
  3. Poor communications: If you find yourself chasing after answers to every question or finding yourself with questions you can’t get answered about a company’s products or services, it may be time to walk away from the opportunity.
  4. Expensive ongoing training or other fees: Although MLMs offer training, you shouldn’t be required to attend any of it. Expensive ongoing training meetings, product update meetings with hefty fees and similar situations are indicative of a scam.
  5. No management team listed: If you go to the company’s corporate website, you should be able to look up the company’s management team and then search for them online. No team, no bios, no business. Walk away!
  6. Outrageous claims: No one has invented the cure for cancer or the common cold. If the products you are selling claim to provide outrageous benefits to the end user, it could be a sign of a scam. The Federal Trade Commission in the United States provides strict guidelines about what may be claimed in advertising; if the company regularly fails to follow these guidelines or is cited by the FTC, it may be a big red warning flag.
  7. Instinct: Never discount your instinct. If a company sounds too good to be true, if the money promises are so big you can’t imagine how you’ll ever obtain them, and if the company seems to have a revolving door of personnel, walk away, and quickly. Trust your instincts.


Lastly, although not a sign of a scam, there is one warning sign I would like to mention: saturated territories. What this means is that the parent company has not put any limitations onto the number of sales reps or independent business owners representing them within a given territory.

In some areas, such as large cities, this may not be an issue. In rural towns and locations, however, it can be a big problem. It can also be a big problem if merchandise is limited. For example, LulaRoe distributors were upset at the number of new distributors per territory. Because there were so many selling similar products, they felt it diluted their sales.

I hope that this series on MLM or direct sales business opportunities has been helpful to you.

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