How to Tell: Pyramid or a Legitimate MLM Company?

Jan 3, 2023Sheffield Blog

From MLM Attorney, Jeff Babener, learn how to identify a pyramid scheme among the plethora of direct selling companies. Begin by reviewing this checklist of questions to help determine company legitimacy.

  1. Is the product desirable and priced competitively? Is the product proprietary? Does the product stand out when you show it to your friends and family?
  2. Is there an investment requirement? Can you participate in the company’s program without having to make a purchase apart from a demonstration kit?
  3. Are sales commissions paid only on actual products or services sold through distributors in the network for use by the end-consumer? Does the compensation plan avoid paying commissions or bonuses for the mere act of sponsoring or recruiting?
  4. Will the company buy back inventory and sales kit materials from distributors who cancel their participation in the program, as long as these items are in resalable condition?
  5. Is there an emphasis on actual retail sales to end-consumers? Can the company demonstrate efforts to market products to the ultimate consumer? 
  6. Are distributors in the company required to actively participate in the development and management of their networks? 
  7. Does the company’s literature and training materials avoid claims of income potential that promise specific income levels other than demonstrations of verifiable income levels? 
  8. Does the company offer its independent distributors solid training opportunities in sales and recruitment? Are different levels of training offered to match the increasing levels of experience and responsibilities of distributors?

The answer to these questions can begin to help you identify reputable companies as opposed to pyramid schemes.