MLM/Network Marketing Evaluation Tool

Posted on March 27th, 2008 by Morgan Schouten

Have you ever wondered if there was a step-by-step process for evaluating an MLM/Network Marketing company to determine if it’s a recruiting MLM, or exploitive chain selling program (or in other words - a “pyramid scheme”)?  Well, I have exactly what you’re looking for. This is a 5-step program that you can use to evaluate an MLM/network Marketing program – or any other type of chain selling programs 

  • #1: Participants are recruited in an endless chain of participants.

Would you, as a new recruit, be permitted and even encouraged to recruit other participants, who would in turn be encouraged to recruit others, and they still more, etc. – from whom you could collect commissions and/or bonuses on what they buy or sell?

 

  • #2:  Advancement in the scheme is by recruitment, rather than by appointment.

Is advancement in a hierarchy of multiple levels of participants achieved by recruitment and/or by a combination of recruitment and sales volume, rather than by appointment, as in other work or sales settings?

  • #3: Participants are expected to buy (or subscribe to) products or services in order to qualify for commissions or bonuses or to advance in the scheme. 

Are you being encouraged to make initial or ongoing purchases in order to take advantage of the “business opportunity,” and later to continue qualifying for advancement in (or payout in overrides and bonuses from) the MLM company? 
– or –  
Even though there is little or no cost to “sign up” for the program, are there minimum volume requirements that must be met in order to advance to higher levels in the hierarchy or to receive greater commissions or bonuses at some level?
 –or –  
Are you expected to pay for training seminars, workshops, audio or video programs, weekend retreats, etc. in order to stay in the good graces of your up-line? 

  • #4: The company pays commissions and bonuses on more than four levels of participants.

Does the company pay overrides (commissions and bonuses) to distributors in a hierarchy of more than four levels?

 

  • #5: Company payout per sale for the total of all up-line participants exceeds that for the person actually selling the product.

Would the total amount of commissions (or discounts, bonuses, etc.) paid by the company to the entire up-line of a participant receive more than he/she would receive for actually making the sale?

Evaluation

If you find all five (or even four) of these red flags in a compensation plan, then the MLM program could be considered a recruiting MLM, or exploitive chain selling program (translation in many jurisdictions – “pyramid scheme”) in concept, structure, and effects. This would be true regardless of quality of products offered, type of compensation plan, company policy regarding recruiting, or any other efforts of company officials to make its program appear to be legitimate. The primary emphasis is on deriving income from recruitment, with insufficient incentives to retail products or services.

Regardless of what label is placed on the program – chain or  pyramid selling program, “direct selling,” “consumer direct selling,” network or multi-level marketing (MLM), etc. –  when these 5 Red Flags have been found in a program, over 99% of participants lose money - even as high as 99.9%. You can do better gambling in Las Vegas. 

So – what was the outcome of your analysis of the MLM program you are considering? If you found at least 4 of the “5 Red Flags,” you may want to reconsider your decision.

(This information was provided by Dr. Jon Taylor, MBA, PHD)

 If you’re interested in a company that only has two of these flags, take a look at my lead capture page.  

Make It A Great Day!

Morgan Schouten

Filed under: Uncategorized

40 Responses to “MLM/Network Marketing Evaluation Tool”

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