Network marketing is a model of distributing goods from producer to consumer without traditional retail stores. In this system, sales are made by agents called distributors. They purchase goods at special prices and then offer them to their acquaintances. However, sometimes under the guise of honest network marketing can hide financial pyramids. Therefore, it is important to know how to distinguish between honest companies and those engaged in fraud.
Olga Asadchaya, Director of the Employment Center at Synergy Corporation, answered this question for RuNews24.ru readers.
“Conscientious MLM companies sell real products or services that have value in the market, while financial pyramids put the main emphasis on attracting new participants to generate income. According to DSA data, 76% of income in legitimate MLM-companies falls on product sales, not on attracting new participants,” - said the speaker.
The expert separately emphasized the fact that joining a bona fide network marketing company requires reasonable start-up costs or training.
“Financial pyramids often require significant investment, offering little or nothing in return. A study by the Federal Trade Commission (FTC) found that 99% of participants in financial pyramid schemes lose money. In bona fide network marketing, income is based on selling products and building a team, while in pyramid schemes it is primarily based on recruiting new members. According to statistics, only 25% of network marketing participants receive a significant profit, the remaining 75% have small or moderate income,” - said the expert.
Thus, to distinguish a bona fide network marketing from a financial pyramid scheme, you should pay attention to the presence of a real product or service, transparency of the company structure, rewards and bonuses, lack of deception and fraud, as well as long-term development prospects.