Published: 17 June, 2022

How to identify and prevent MLM scams ?

Check out the Guide, To Identify the tricks of MLM Scams and how to avoid MLM Scams for your MLM Based Platform Published by Osiz Technologie

How to identify and prevent MLM scams ?

What is MLM?

Companies use multi-level marketing as a distribution strategy to get their goods to clients, C. They use sales representatives to distribute and sell their products rather than offering them directly to consumers online or in brick and mortar stores.

Sales representatives usually work from home and purchase inventory to sell at in-person or online parties. Instead of being considered, each sales rep owns their business. The potential of each representative to recruit and train other representatives to start their own firm is referred to as the multilevel component.
The members above them generate revenue as registrants make sales and recruit their own reps.  The commissions received on personal sales and a percentage of the sales generated through other representatives hired by you are the two sources of revenue in MLM.

How does Multi Level Marketing (MLM ) works?

With an MLM, you typically are recruited by someone who is already in the business. You may have attended their events and know more about their products.  Once you are interested in the event, you may go to the next level of meeting to know more about the business. You will be asked to register and buy products and then you start your business. 

To know how MLMs work, it also assists to be familiar with the companies  that includes, 

The plan- This is the overall program which includes the marketing and remuneration programmes for the company.

Sponsor - The representative who personally recruits another individual into the firm is referred to as a sponsor.  For example, MLM member A recruits member B into the business. Member A is the sponsor and is in charge of training member B. 

Recruit - The person who is introduced into the firm as a new member by the sponsor and it that person is known to be a team member. Sponsors or other more experienced representatives train the recruits.  

Down-line- These are the recruits who have been brought under you. This included members you have recruited as well as members brought in by your recruiters.

Up-line- The sponsors who came in before you make this group. For example, when Member A recruits Member B, who recruited member C, who recruited you, your up-line is in order like C,B, and A. 

Compensation plan- This section lists all of the ways reps can make money. Many organizations give bonuses and boost commission divides based on sales volume, to commissions on sales generated by you and your team. 

What is an MLM Scam?

MLM is a legal marketing technique that is actually a pretty smart plan that could cost the company a fraction of what a regular corporation would pay on marketing. On the other hand, ethics are occasionally questioned. In certain conditions, an MLM organization can turn into a pyramid scheme. Members may pay a charge to participate in a pyramid scheme. 

When they introduce a new member into the plan, they get a share of the money back. The more members they bring on, the more money they earn. There are no products involved in it. This implies you had make money with someone else who had paid a charge to join, which makes pyramid scams effectively, pyramid schemes. 

On the other hand, MLMs sell products to produce revenue resulting in a long-term system for all concerned parties.

How to prevent MLM Scams?

MLMs prosper during recessions. They rely on large groups of people who require assistance and resources. They prey on folks who are barely getting by, but can nonetheless afford to start with their own money. 

Because of the importance of social media, you have certainly seen a friend or family member utilize their page to sell things. Herbalife, Nu skin, and Arbonne are some of the well-known brands These businesses are MLMs and its members have all spoken out against their practices.

Some warning symptoms of an MLM scheme, 

  1. High-pressure sales tricks 

  2. Low-quality product or service 

  3. Unfounded product offers 

  4. Pressure to purchase and stock inventory

  5. Poor communication from a company

  6. Expensive on-going training 

  7. Low business bureau rating 

  8. Deceptive advertising practices

  9. Discomfort feelings

  10. Esoteric job intervie

Common MLM scams 

  1. Pyramid schemes with a vertical network expansion in which a person receives a commission regardless of the sale.

  2. Ponzi schemes do not entail a sale and require money laundering over a network of people.

  3. Pump and Dump Schemes: After the victims have made a purchase, the schemers reduce the price dramatically.

  4. Exit Scam: Promoters who take money from victims and then vanish, leaving them in the dark.


Thus, most MLM scams have no actual earnings and they rely on a steady stream of new money to stay a float. When it gets difficult to acquire new members, they simply vanish. Existing members earn more commissions if they recruit new members in a typical multilevel marketing plan.

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