Multi-level marketing or pyramid scheme? Look for these red flags before signing up
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It’s an attractive proposition — being able to work from home and earn commission on sales, with the flexibility to work as little or as much as you want.
That’s the general allure of multi-level marketing companies, or MLMs, especially for Canadians looking for a side hustle to supplement their income or some extra cash as they parent at home.
But not all MLMs are the same, and they’re not a guaranteed source of income, experts say, which is why you need to do your homework before signing on the dotted line.
“If it sounds too good to be true, it probably is,” said Kenneth Wong, a faculty member at the Smith School of Business.
A multi-level marketing company is a form of direct selling where sellers not only sell goods or services, but also sponsor new sellers, and can receive additional income to compensate them for leading their own team, according to the Direct Sellers Association of Canada.
Multi-level marketing companies are legal in Canada — but pyramid schemes are not.
The Competition Bureau says pyramid selling focuses primarily on generating profits from recruiting rather than sales, while MLMs are focused on selling their product.
There are rules about what MLMs can and cannot do. For example, it’s illegal for them to offer compensation for recruitment, require purchases for participation other than a startup kit, require an unreasonable amount of inventory holding, or fail to offer a reasonable buyback guarantee, the bureau says on its website.
It might sound easy, but selling and recruiting are a lot of work, said financial educator Jessica Moorhouse. And while you might be able to start by selling to friends and family, they likely can’t sustain your business — and you also risk damaging those relationships.
Content retrieved from: https://www.lakelandtoday.ca/media-industry-news/multi-level-marketing-or-pyramid-scheme-look-for-these-red-flags-before-signing-up-9387214.
