Information from the Washington State Department of Financial Institutions

The Basics of Multi-Level Marketing

Multi-level marketing programs involve the sales of products or services through various levels of distributors.

How multi-level marketing programs work

Here's how a basic multi-level marketing programs works.

  • A distributor, also known as a sponsor, is expected to recruit other distributors.
  • He or she is then responsible for training and motivating the new distributors.
  • In return, he or she receives a percentage of their sales, and may receive bonuses when sales quotas are exceeded.
  • If these distributors recruit their own distributors, the original sponsor also receives a percentage of the new sales.

Multi-level marketing is a way to get in business for a very small amount of capital investment, sometimes less than one hundred dollars. Some people do very well, but the people who are very successful are few and far between.

The people who are really successful are usually zealous about their product and company, and they are usually extremely good salespeople. Obviously these are attributes that will make a person successful in most any business.

Multi-level marketing or pyramid scheme?

Know the difference between a multi-level marketing program and a pyramid scheme.

Bona fide multi-level marketing programs allow a distributor to sell the product or service if they do not wish to recruit others.

Pyramid schemes make their money by recruiting other people to invest. If there is a product or service, it is incidental to the recruiting effort. Pyramid schemes always collapse with only the promoters and/or the very first investors making any money.

Multi-level marketing fraud warning signs

  • Beware of plans that ask distributors to spend money on high-priced inventory.
  • Be cautious of plans that claim you'll make money through continued growth of your "downline" instead of through sales you make yourself.
  • Beware of plans that promise enormous earnings or claim to sell miracle products. Ask the promoter to back up the claims with hard evidence.
  • Beware of shills - decoy references that promoters pay to describe fictional success in earning money through the plan.
  • Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Take your time to think over a decision to join. Talk it over with your spouse, an accountant, or a lawyer, or a knowledgeable friend who isn't involved in the business.