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To Invest or Not to Invest?

In a tough economy, many people look for ways to earn extra income. One way is to join a network marketing company. A home-based business may sound like a dream come true, but for many it can also turn into a nightmare. 

Legitimate Network Marketing Business or Pyramid Scheme?
A network marketing business model is one that promotes products or services directly to consumers instead of using paid celebrities or expensive advertising campaigns. An independent salesperson (called promoters or distributors) gets paid to promote their products to their family, friends, and other people who hear about their business through their network. Companies also pay commission to promoters who recruit other salespeople into the business, so one can make money off their personal sales and the sales of others they recruit. This can be a great tactic because many consumers want to know the products work, from someone they know and trust, before they make the buying decision. With the advent of social media, this business structure can prove to be very lucrative for both the parent company and the independent promoter. 

There are many names for this type of business opportunity. Some of the terms you may hear are:

  • Direct Selling
  • Multi-Level Marketing (MLM) 
  • Referral Marketing 
  • Word-of-Mouth Marketing 
  • Interactive Distribution 
  • Relationship Marketing 
  • Affiliate Marketing 
  • Home-Based Business Franchising

Regardless of what the business model is called, the one term you want to be aware of is pyramid scheme. According to the Federal Trade Commission’s Consumer Information website, “One sign of a pyramid scheme is if distributors sell more product(s) to other distributors than to the public—or if they make more from recruiting than they do from selling.” This type of business model is not sustainable because at some point, their networks are exhausted and promoters are left with the costs associated with staying “active” with the company. Pyramid schemes have cost investors their life savings and have been detrimental to their personal relationships. Recruiting someone into a business that is a scam destroys reputations and causes financial distress.

There are several things to consider before investing in a company.

  1. Investigate the Products
    Many companies claim their products are “miracle cures” or are the “best on the market.” Make sure they are legit, safe to use, competitively priced, and actually work. Ask the promoter for their personal story with the product, ask for referrals from other customers, and ask if they have any negative feedback regarding its use.
  2. Investigate the Company
    You are only as strong as your company’s reputation. Find out how long the company has been in business, how much profit the average promoter makes, and how much time and effort it takes to make the business profitable.  Sometimes, the time away from family, expensive business trips, and the amount of products you have to purchase turn into expenses that offset profits. Make sure the benefits outweigh the costs. 
  3. Take Time to Deliberate
    We all know that making impulse-purchases can easily turn into buyers’ remorse. Don’t invest money into a company that you’re not absolutely sure about—you may regret it later. Hearing an inspiring sales pitch from someone you trust can convince you to make a rash decision without considering the consequences. Make sure you review and understand the compensation plan before you invest. It takes time, effort, and money to make any business work. You need to be fully aware of what you are getting yourself, and your family, into.

One downside to the viral nature of social media is that if a product or business is a scam, it can reach thousands of people who eventually become victims. You can be held responsible for any false-claim you make on behalf of your business so be sure you represent a legitimate company. To find out more information, visit the Federal Trade Commission’s Consumer website You can also contact your state’s Better Business Bureau and Attorney General’s office to see if any complaints have been filed or to submit your own complaint.

Network marketing can be an amazing opportunity for financial freedom, flexibility, and personal and professional growth.  One can literally work their business from their phone, connect with people online, or promote their business from a cabana on the beach. The key to any venture is to do your homework and strive to be as consumer-literate as possible. 


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