Last week's column about work-at-home scams generated a flood of e-mails from people desperate to find another source of income and confused about how to identify legitimate offers.
Many of the questions appear to be about multilevel marketing, one of the most common forms of work from home. More on MLMs in a moment.
But first, since you've found my column on the Internet, while you're online here's a simple but powerful Internet tip: Type the name of any work-at-home company into a search engine and see what comes up.
Then type the name of the company and the word "scam." Of course, people can say unflattering things about good companies, but if you encounter page after page of consumer complaints about the company, you will know to proceed with extreme caution.
Now, about MLMs. People often confuse illegal pyramid schemes and legitimate multilevel marketing companies. You definitely want to avoid pyramids. But the truth is, even if a multilevel marketing company is LEGAL, it may not be PROFITABLE.
For one thing, most MLMs allow an unlimited number of people to become distributors in a single market. That's in contrast to traditional businesses, which often give each salesperson an exclusive territory.
Furthermore, even though multilevel marketing companies pass the government's legal litmus test by offering products for sale, sometimes they are still structured as a pyramid that rewards longtime distributors more than new recruits. In a traditional business, a veteran and a newcomer make the same amount of money if they sell the same item.
Because of these inherent disadvantages, drop-out rates in multilevel marketing are astronomical. One major MLM says 50 percent of its sales force bails out every year. Only nine percent of its people last 10 years. The Web site MLMSurvivor.com says less than 1 percent of multilevel-marketing participants make a profit — and even fewer make a living.
If all that is not discouraging enough, consider whether you want to turn your friends and family into sales prospects. Years ago, some acquaintances invited my parents over to dinner. Halfway through the evening, it turned into a multilevel marketing pitch. My dad, never one to disguise how he feels, got up from the dinner party and walked out. Can you blame him?
DO YOUR HOMEWORK
1. Analyze whether the product can stand alone. Would it be competitive if it were being sold in a regular retail setting rather than through multilevel marketing? Does the product have staying power, or is it tied to fleeting trends? Is it competitively priced?
2. Consider how you were approached. Was it deceptive? Did the company emphasize how great the product is? Or how great the business opportunity is?
3. Ask the company if it allows unlimited numbers of distributors to work in the same territory. If so, the marketplace could be saturated with too much competition.
4. Figure out whether you can make good money just by selling the product, without recruiting other distributors.
5. Analyze whether you make the bulk of the commission when you sell a product or whether people above you in the hierarchy make just as much off your work. If they do, that's not a healthy business model, and the company may be an illegal pyramid scheme.
6. Ask existing distributors how long it took them to turn a profit after joining the company. (Make sure they deduct operating expenses and product purchases when they do the math for you.)
7. Ask the company to break down its distributors' average income (after product purchases) by percentile. How much money do the top 1 percent make? How much money do the bottom 1 percent make? And so on, for every percentile in between. You're scrutinizing to see if the vast majority of distributors make little or no money. Also compare these earnings figures to the minimum wage. If the company won't provide this information, don't get involved.
8. Ask longtime distributors when they last took a vacation. Ask them if they know anybody who no longer actively works in the business but still makes money from it. This is a test of the company's claims that you can make a good living and have more time for yourself through multilevel marketing.
HOW TO COMPLAIN:
If you want to alert other consumers that an MLM is bad news, complain to the BBB and your county and state consumer protection offices. If you think the MLM is doing something illegal, try your state attorney general and the Federal Trade Commission.
www.pyramidschemealert.org This is a nonprofit Web site with reams of information about which MLMs are really pyramid schemes.
www.ftc.gov The Federal Trade Commission, or FTC, is the nation's consumer watchdog. Go to the consumer protection section for dozens of articles about work-at-home scams and pyramid scams.
www.consumeraffairs.com This is an independent site run by a group of people who consider themselves consumer advocates first and journalists second. It's a great place to look up complaints about companies and file one yourself if you like.
www.ripoffreport.com This site is massive and a bit unwieldy, but because of its popularity it's a great early warning sign of how a company treats its customers. Read the company responses too!
www.bbb.org The Better Business Bureau is the granddaddy of them all, and this centralized site allows you to search a company by name, then links you with the local BBB where the company is based.