Is MLM Really Legal or Not?
Posted by Gordon on
March 2, 2008
Is MLM Really Legal? If It Is, Why So Much Controversy?
Yes, on the whole, MLM (multi-level marketing), also known as network marketing or referral marketing, is legal.
The main difference between MLM and traditional companies is that traditional companies promote their goods and services with all sorts of expensive advertising. MLMs pay a commission to independent distributors who promote the goods and services through various methods, including word of mouth.
Both ways of marketing are usually legal, but different methods are used to promote and get the goods and services from the provider to the consumer.
A small number of MLM companies and individual distributors operate illegally. They make product claims that can’t be proved or they guarantee a specific level of income.
Some people make claims and promises because they get carried away, while a few others just push the boundaries of responsible marketing on purpose (and don’t care).
In the United States, the Federal Trade Commission (FTC), the Food and Drug Administration (FDA), plus a few watchdog groups monitor MLM companies and activities.
For example, the FDA doesn’t want claims made about nutritional supplements curing or preventing some disease unless there is accepted medical testing. Most supplements are beneficial and help in some way, but we need to be careful about making bold claims.
Over the years, some MLM companies have been shut down by a federal agency or by an attorney general. Those MLMs crossed the line in one or more ways.
While most MLM companies and individual distributors comply with various guidelines, a few go too far. Sometimes, it’s due to lack of awareness and sometimes they try to get away with questionable tactics. Either way, the detractors make it sound like all MLMers are up to no good. Also, it only takes a small number of negative things to make the whole industry look bad.
There are other types of businesses and manufacturing facilities that get shut down for various reasons, but they usually don’t get as much negative attention as MLM does.
Too many people like to criticize and point fingers at something they don’t understand.
One of the things that can get a company in hot water is paying people just for bringing in (recruiting/sponsoring) other people. Commissions should be paid on the sale of goods and services. If a company pays people just to bring in others, it’s likely to be investigated and could even get shut down.
Another thing that might cause suspicion is when the company sells a product of no real value, such as an out-of-date e-book or a so-called business report. Such items are often promoted as “must-have” information at extremely inflated prices.
Many of us have been in MLM without reaching the level of success we wanted. Sometimes, the pay plan made it tough for the average part-timer to get ahead, or the marketing approach was not effective. However, there are plenty of times when our lack of success was due to our lack of action.
With some MLM groups promoting their program by saying things like “we do all the work while you collect the checks” and so forth, people don’t always realize that they must take responsibility for their own success.
Some people are looking for something-for-nothing, and when it doesn’t happen that way, they move on to the next one. The only way to break that cycle is to find out how to pick a good plan and then follow a plan of action. A good group will share their expertise so that you can find out what works best to promote and build your business.
Unfortunately, some people complain about legitimate companies when that person simply did not take action to become successful. They blame the company and/or the plan rather than admit that they were their own victim. They tell others it was a scam and a good company has its name dragged through the mud.
We should avoid certain “biz opps” that seem a little shady or make promises that we’ll make money with them no matter what. When enough people “fall” for a shady deal, it just encourages scammers to come up with another way to take our money. We end up disappointed and the industry suffers from more negative press.
Even a company (and pay plan) that’s one of the best ever might not be a “good fit” for everyone. It’s in your own best interest to understand all aspects of a home business before getting involved. Find out about the company, how long they’ve been in business, the types of products and/or services they offer, as well as the pay plan and how you can get the most out of it.
