We've discussed several MLM scams in the World Financial Group discussion thread, but this thread is to provide a one-stop reference for those who may be solicited by these organizations.
Please add your MLM scams and a description of the REAL way they work to this thread. I'm sure many people have been solicited for these scams , saw past the hype and discovered the "real" deal, and know the dirty details of how they work. While I know many FW Finance readers are very knowledgable and would not fall for such schemes, there are many younger members and lurkers who may find this info valuable.
LIST OF MLM SCAMS
Cutco / Vector Marketing - is an MLM targeted at students, usually see flyers advertising "$17.50/hour to start" requires demonstrating expensive knife sets in homes of friends family and strangers. Must purchase your own "demo set" for about $150. You get paid for each "1 hour demonstration" you do, but it obviously takes several hours to arrange, travel and find suckers willing to listen to you do the demonstration.
Quixtar
Amway
Shaklee - gets people to sell private label household products (cleaners, soaps, vitamins, etc) to friends and family. Most salespeople buy their own items as well. Youll never make money smokin what you sell
World Financial Group / WFG / WMA - this is an interesting one, the premise is that you will sell insurance to friends and family. Have to pay a "Background check" of about $150 which is bogus, and since people still need to pass their states insurance licensing test, most people abandon the pursuit after paying the background check but prior to ever taking the insurance tests. by that time, the "mentor" has usually sold several policies to the new recruits friends and family.
Primerica - similar to WFG, but is owned by Citibank
TIPS ON SPOTTING MLM SCAMS 1. they talk about "unlimited earning potential", financial freedom, and all the other feelgood lines, without ever really discussing business facts.
2. theres no education/experience requirements
3. you are asked to pay a penny for ANYTHING - "background check", "processing fee", "demonstration set", "website setup", etc.
4. You are asked to sell to friends and family
5. There is a "residual income" plan enabling you to earn money even if you dont work
6. It is touted as the solution to all your prayers, financial problems, etc.
To keep this thread as a useful resource, lets not get into a "proMLM/antiMLM" debate. Please keep this thread focused on discussing the various MLMs you have encountered, the tactics they use, the products they sell, the "real" deal when you get past the hype, and any known fees/costs...MLM success stories are certainly welcome as well.
Excel Telecommunications - You sell long distance phone service to your friends and family. Lots of talk concerning profit potential as you build your downline; i.e. convince others in your downline to become representatives for a small nominal fee which was $170 back when I heard the spill. Probably more now. I actually saw a few people experience success with this however. The caveat though: They were already extremely established businessmen in the community with thousands of initial contacts. One of the reps was pulling approx. 1/4 million dollars a year before greed got the best of him. Tried pushing other pyramid products through his downline and got busted. He and others were booted from the program and lost all income. Good point to make with these pyramid schemes. If you don't already have thousands of contacts at your fingertips or dont have any experience or success with cold calling, DO NOT GET INVOLVED!!! There are better ways to make money!
BTW - I'm not sure about this but I think Excel is pushing a 10-10 number now; something like 10-10-287.
Another tip-off I've heard for MLM scams, the assurance that "you WILL be rich by the time you are 40" (or insert any other appropriate age for the given audience). Of course, I heard this from a kid who was 24 and right out of college, not yet rich himself, but had no doubt that he would make others rich...
HAHA CUTCO... my grandparents have these knifes.. for over 20 years.. they love them.. Infact, they had some distant family stay with them.. and there was a big fiasco over the cutco knifes, when some of them ended up missing!
#7 - The members you know are idiots and are wholly incapable of success in the private sector. Yet they wow you with stories of their good fortune and obscene potential for future profits.
huh, so that's what primerica is... I'm looking for a job and put my resume on monster.com and someone from primerica sent me this email.
From : Primerica <primerica@columbus.rr.com> Sent : Tuesday, December 9, 2003 10:30 AM To : debtman7@hotmail.com CC : Primerica <primerica@columbus.rr.com> Subject : I saw your resume on Monster.com
I am a Regional Vice President with Primerica, a division of Citigroup. I recently reviewed your resume on Monster and would like to discuss the opportunities I currently have available. Please contact my Division Manager Jeff Leichman at 614-807-1212.
I look forward to possibly meeting you.
Dan Moss Regional Vice President Primerica, a division of Citigroup
No idea what it was about but as a standing rule I'm not going to call some company about a job if they don't mention what they are hiring for. That explains a lot
My roommate does Herbalife. I hear him tell people that there's a $299 fee to get started for "first months' products" (they tell you that you HAVE to use their stuff in order to sell it) as well as "distributor ship license," etc. Anyone have any other info on them? Are they considered an MLM Scam o r similar?
A friend of mine went to a Partylite party (high-priced candles, etc).
Did a cursory google search and it appears to be quasi-legitimate although 5 out of the 6 points in 'How to spot a scam' were applicable. >>
PartyLite works just like Tupperware, Mary Kay, Southern Living @ Home and any other home party companies. My friend is a representative and has been very successful.
The candles are a little higher than your Drugstore variety, but they are worth every penny.
At least with the "home party" MLMs, the participants usually understand they are SPENDING money and this isnt the "path to financial freedon" touted by most of the other MLMs.
If anyone actually sat down and tallied the money they spend on these companies products compared to monies received, the MLM will always come out ahead.
I hate to break it to you all, but MLM is a legitimate (read: legal) business model that has worked for years. Lots may make outrageous claims that are down right unethical, but to label all MLMs as "scams" just shows one's ignorance of the industry.
I don't currently work for an MLM, but I did for about five years a while back (IT stuff). I never personally sold their product, but I did become very familiar with their business model, www.nuskin.com (it’s on the MLM list posted above).
In your standard corporation you have cost of goods, marketing, and regular overhead involved in selling a product. In an MLM the money spent on marketing is paid to the distributor on a sliding scale with the person who actually sold the product making the most, the person who recruited them next, and so on. The key to the profit always being selling product, the more people you recruit the more product you sell obviously, but the product is where you make your money.
A pyramid scheme works exactly the opposite in that recruiting people is where you make your money. Some MLMs really are just pyramid schemes dressed up like MLMs to keep the local Attorney General out of their back yard, but when you break down their compensation structure and the products they sell. The business plans looks less MLM and more pyramid. My friend tried to get me into an MLM that sold sporting goods. It would cost me $1,000 or so to join and as a result he got $250 and a % of whatever I would have sold. Problem is, how many sets of golf clubs or tennis rackets can you sell without opening up your own sporting goods store? Not many, so your only option is to recruit bodies. Sucker them into paying the $1k entry fee and make your $250 and run. It just doesn't work and eventually crashes in on itself, and that's why they're illegal and shut down (which my friend's company was) by the govt.
When I was at Nu Skin the distributor fee was something like $50, and most people signed up just to get the product at a discounted rate. I know at times they toyed around with sign up "kits" and whatnot that were more expensive, but they came loaded with product, materials, yet the end play was to sell the product.
For myself the #1 rule to identify a scam and/or pyramid scheme is to look at their product. Is it consumable? Amway is famous for soap, Nu Skin sells lotion/vitamins, shampoo, etc, Mark Kay sells make-up and what not...All consumable goods that require the customer to keep buying more, and that more is what makes you money as a distributor. This is why Cutco strikes me as dirty. How many knives can you sell someone? You sell 'em a set and you're off to find a new customer, doesn't jive to me for the above mentioned reasons. They may be good knives, but you're not going to catch me selling them or any MLM product for that matter. It’s just not my cup of tea.
There is money to be made in MLMs. I have personally seen the insane monthly checks as they come off the printer(stuff that would make CEOs jealous) going out to distributors, and they let everyone know how well off they are and how you can be just like them. However they are the exception to the rule, and the rule is very few (fraction of a %) are the people who make it big or even make it worthwhile.
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