FTC: MLMs Must Focus on Sales to Outside Participants / Pyramid Schemes Recruit

I see many MLM distributors confused about the very industry they are in. I’ve read one distributor claim, “MLM is not a sales business, its a training, coaching and mentoring business.” A distributor holding this view seems to be confused about what the FTC has to say on the subject.

The FTC has a great guide of MLM vs. Pyramid Schemes:

“Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products.”

“Avoid any plan where the reward for recruiting new distributors is more than it is for selling products to the public. That’s a time tested tip-off to a pyramid scheme.”

“Another sign of a pyramid scheme is if the money you make depends more on recruiting — getting new distributors to pay for the right to participate in the plan — than on sales to the public.”

Here’s a letter from when the FTC went after JewelWay for being a illegal pyramid scheme:

“Legitimate multi-level marketing plans are a way of making retail sales of products or services to consumers through a network of representatives. However, in an illegal pyramid scheme the main focus is not on sales, but on recruiting new representatives into the program. Typically, each new representative must buy a certain amount of products and must recruit a specified number of new participants in order to earn money in the program. In a pyramid scheme there is almost no emphasis on making retail sales of products to persons who are not participants in the program.

I’ve added some emphasis to particular points to make it clear. The unbiased reader will likely get the point without the added emphasis. However, an MLM distributor who believes that he/she does not have to sell product will likely experience cognitive dissonance and try to explain away the FTC’s requirement to make sales to others outside the scheme.

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