Are all Multi-Level Marketing Companies a Scam?
So, for those of you who don’t know, the FTC labeled Vemma a pyramid scheme, or a scam, late last month and I wanted to get this information out there and start a dialogue for all of you who may or may not be partnered with an MLM or are thinking about partnering with an MLM in the future.
Before we dive into this, I’m not a lawyer, I’m not an expert on FTC regulations, and this isn’t an attack on Vemma in any shape or form. I don’t know anything about their company make up, I don’t know anything about their comp plan, or how they train their partners. The only reason I’m saying their company name is because they’re in the news and it’s the catalyst for this conversation so if you do happen to be in an MLM, you can see if your company falls under the same category as Vemma.
Why did the FTC target Vemma?
One of the FTC’s claims is that Vemma “focuses more on recruitment than retail sales”. The big warning sign that you need to look out for in your own MLM, or one you’re thinking about partnering with, is if the people in the business make a bunch of outlandish claims about income, cars, boats, etc., but you have no clue what their product is or does.
What causes this a lot of the time is when you get a few people that decide to start an network marketing company and they spend all their time working on the bonus structure and the recruiting and then they realize, “Oh crap…we need a product…” If the company you’re working with is really pushing recruiting and you don’t have any retail customers, that’s a big red flag.
Be sure to look at your business and how it operates to see if anything along this line sticks out to you.
FTC Claims That Most People Lost Money
Part of the FTC’s case against Vemma is that most of the reps lost money and that the possibility of losing money wasn’t disclosed to them up front. This one I don’t really agree with. When you start up a business, not matter if you’re looking at an MLM or a bona fide corporation, losing money is always a real possibility. Revenue, and profit for that matter, is never a guarantee and if you don’t put in the work, you’re not going to be rewarded.
I’ve been involved in my business for over 8 years and I recently saw a great video by Gary Vaynerchuk about time and patience where people come up to him saying that they’ve been working at something for four months and it isn’t getting them the return that they want. If you’re going to try something for four months and then give up when a Ferrari doesn’t magically appear in your drive way? F off.
If you sign up to something, don’t put any flipping work in, and then wonder why money isn’t raining from the sky…guess what? You don’t have any ground to call it a scam. You didn’t do any work.
Vemma Provided Little Guidance on Selling Products
A recurring complaint from the reps was that Vemma only promoted and trained them on how to recruit rather than selling the actual product itself. This hits back on that first point up above. The big thing about pyramid schemes is that there absolutely, positively has to be a product involved or you’re in dangerous waters. There has to be something that provides value and helps you, whether it’s makeup, energy drinks, a workout program, etc. Someone should be able to do business with you and benefit without having to become a distributor or a rep on your team.
With my company, it’s half and half. We’re very product driven and we teach our reps how to retail. I have people on my team that don’t recruit at all, sell only retail, and still do really well for themselves from just getting commission on selling the product or getting their referral fee. It’s all in how the company is structured.
If you have questions about which side of the fence you fall on, definitely take the information from the Vemma article to your company’s legal department to make sure you’re on the up and up.