How to Recognize and Avoid Multilevel Marketing Scams

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Whether you’ve heard the exact name or not, there’s a strong chance you’ve heard of or maybe even participated in a multilevel marketing scheme before.

Like most schemes of this nature, they tend to prey on the desperate, the bored, and the gullible. However multilevel marketing scams are all the more insidious for being based around a kernel of truth, with most not being technically illegal in how they operate…at least on the surface, until most are inevitably shut down after a while.

Make no mistake, the old adage always holds true: if something sounds too good to be true, it probably is. These types of schemes are a drain on a lot of people, and the best way to avoid getting sucked into one is to be able to recognize them when you see them, and hopefully convince whoever is trying to pull you in as well to get out while they can.

Multi-Level Marketing

What is a Multilevel Marketing Scheme?

Also known by the abbreviated term, MLM, a multilevel marketing scheme is a type of business arranged with a very specific structure, though the specifics can vary significantly depending on the exact business.

However, the key facets of these schemes always stay the same.

Multilevel marketing schemes trend towards being direct sales positions of some specific niche product. This could be protein powder, beauty products, food, household goods, or almost anything really so long as it can be manufactured cheaply and with some kind of variety to the selection.

These products then need to be sold.

Selling directly to the consumer, obviously, is going to net the greatest amount of profits, but that tends to take a lot of time: perhaps more time than the initial seller has if the volume of product is big enough.

So the people who start the company have an incentive to recruit other people to sell their products for them, and to be content with “merely” taking a cut on the profits. To make sure they get something up front, they make the person “downline” of them (as it’s called) purchase the product directly from them, usually at a discount to make it tempting, and then sell the product on their own to make more money.

This is similar to how a normal business might work, except in this case the supply chain is being created manually, from seller to seller.

This cuts out a lot of the middle men, and encourages people downline of the initial seller to find their own downline sellers to maximize their profits for minimal effort; after all, directly selling door to door or person to person online or over the phone is tedious, slow, and unlikely to net too many sales. Particularly as these multilevel marketing setups usually create other incentives based on how many downline sellers an individual has – various perks, steeper discounts on purchasing the product to sell, and so on.

This centralizes all the profits in the hands of people directly selling the goods.

Sounds good, right?

Businessman sit at table working on project strategy, close up view male hands holding felt pen creates multi-level network marketing scheme on paper. Visual plan, advertising, pyramid selling concept

What’s the Scam Part?

As you might have noticed, this kind of business model is unsustainable in terms of profit for anyone too far downline. These people are going to be purchasing the product for a fair amount of money, and only making back marginally more than they actually spent…if that.

According to research done by the United States Federal Trade Commission, upwards of 99% of people that get sucked into multilevel marketing scams either break even (if they’re lucky) or actually lose money on the scheme.

But all that money has to go somewhere, right? So where does it go?

Money, Like Heat, Rises

If 99% (or more!) people who buy into a multilevel marketing “business” make no profits or lose money on the scheme, it’s fairly simple to trace the profits back to the 1% who is making money.

Invariably, these are going to be the people at the top, who started the initial business. These people have the most sellers downline of them, and all those residual profits get passed up the chain.

Everything else is a mirage, and it’s this mirage that multilevel marketers try to sell to the people below them.

Vast promises of normal people being able to amass vast amounts of health because, after all, those at the top are making a ton of money, are beyond common. Words like “financial independence and freedom” or “finally being able to achieve the lifestyle you deserve” are tossed around to get people to believe the lie. 

And make no mistake, it is a lie. While it is technically possible to make a lot of money off of a multilevel marketing scheme, the chances of doing so are as slim as winning the lottery…and lottery tickets at least don’t force you to work hard for someone else’ profit while getting nothing in return, you just lose the money up front and don’t have to worry about it anymore.

The only reliable way to make money from a multilevel marketing scheme is to be one of the first people involved. Essentially, the only way you’re making money is if you started the scheme yourself.

Otherwise, all you’re doing is making somebody else rich off your hard work…without even the benefit of a paycheck for your time.

Something About This Sounds Familiar…

If you heard the description of how multilevel marketing schemes work in detail, something might have pinged in your head. The people at the top making a lot of money, and slowly recruiting people, who recruit other people, widening and diluting the base profits that then make their way back to the top of the…pyramid.

Yes, multilevel marketing schemes sound an awful lot like pyramid schemes, don’t they?

And that is what they are. Oh, by the barest legal technicalities and splitting of hairs they are a separate thing entirely, but even that legal façade has been stripped away in several countries, as they are banned all the same, and face constant legal challenges here in the United States that require them to constantly evolve and check at least some of the worst excesses these types of scheme can stoop to.

And the real kicker is that many multilevel marketing scams do dip over the line into becoming a true pyramid scheme, and prey on people even more than MLMs do by default. The line is so slim that the distinction is already pretty much meaningless, so it’s pretty easy for them to make a slight shift in strategy to try to eke those extra last dribbles of profit out of their victims.

The businessman clicks the button MLM on the touch screen . The concept of multi-level marketing.

How Do You Get Someone Out?

Now that you know how to recognize an MLM scam, keeping yourself safe is pretty simple: don’t sign on with any of them.

All multilevel marketing scams look pretty much the same when you start hearing about them.

It’s the people you are hearing about them from that you’ll want to try and help.

The issue, of course, is that someone who’s bought into an MLM to the point of trying to recruit someone else is already invested in it, in more than one way, and this is where human psychology makes trying to talk them out of it an ugly prospect.

The first and most obvious point is that they’ve bought into the multilevel marketing scam monetarily. They spent money (sometimes lots of money) on the product, and are now stuck with piles of it they need to offload. The daunting thought of doing so on their own seems insurmountable, and likely is…so they need to find their own downline seller to help them bear the load they’ve taken on.

They are in the full grip of the sunk cost fallacy at this point, both in terms of the literal sense (where they have sunk a lot of money into the scam) and in the more metaphorical one (they have now invested a lot of time and emotion into the scam).

This sense that they can’t get out because they’ve already invested so much into it gets worse the longer they stay involved, and is what keeps most of the victims of an MLM embroiled in one.

Even worse, this is compounded by the second major factor: the lies they’ve been fed.

Many people who get involved in MLMs are in some kind of dire financial strait. Maybe not an imminent one, but they are dissatisfied with their job, lack the funds required to do something necessary (like pay for medical bills) or highly desirable (buy a home for their family), or are seeking a purpose in life (many stay at home parents fall into multilevel marketing scams as a result).

The seminars they attend as part of the signing on process for an MLM sells them on financial freedom and security, as mentioned. The dream of being your own boss, making a lot of money, and just being able to enjoy life.

 Essentially they are told they finally have a chance to escape the cycle they’ve been trapped in, feeling as if they have no control or way to progress in their life.

These MLMs sell them hope. A false hope, perhaps an obviously false hope from the outside or even to the person signing up. But for someone who believes they have no alternatives, even a false hope is something they’re willing to stoke.

These two major factors make talking someone out of an MLM using logic an uphill battle at best.

Simply pointing out the longshot odds involved is not going to cut it. To people trapped in the lie, a 1% chance of making their life better than what they’re currently dealing with is exactly what they’re hoping for. Nevermind that they’re digging themselves deeper and deeper in the process.

Instead, the process is likely to be painstaking and involve a lot of effort on your part if you want to get someone else out.

You’d essentially need to invest time into “deprogramming” them. Pointing out the obvious flaws in the plan, asking them if they’ve actually made any real money on it, whether they’re tired of doing it, and so on.

Many won’t want to hear it, as the feeling of having their hopes crash down around them is too painful, and they’ll likely ignore you.

Many people, former friends mostly, have likely already cut ties with them, making their support group shrink ever smaller, and making the sunk cost grow to unbearable heights as now they’ve not just lost money, but friendships on this scam. It’s all they have at this point.

In the end, when someone is in deep enough, and has lost a couple of major shipments worth of money on the scam…it becomes almost impossible to talk them out of it. They’ll keep going until something catastrophic happens.

Then What Can You Even Do?

The best way to get someone out of an MLM is to make sure they never join in the first place. As mentioned, these scams are extremely easy to recognize when you know what to look for and are vigilant for them.

Just having the knowledge of what MLMs are like going in, before their own spokespeople have a chance to poison someone’s mind, is enough to turn a lot of people away.

The best thing you can do, then, is to preemptively educate everyone you know about the dangers of MLMs and all other get rich quick schemes” for that matter.

Nip the problem in the bud before it has time to bloom. That’s how you save the largest amount of people from scams like these.

Spread the word, but don’t be preachy about it, and stay vigilant for people you get a suspicious amount of pushback from. Changes are they’re already involved in a similar scheme, and have started to become defensive of their newfound hope.

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