28/12/2020
Are there downsides to network marketing?
Yes โ and they are plentiful. You should be aware of them before proceeding.
Scams
The MLM world is a hotbed for scams and shady characters. Companies like Business in Motion were found to be Ponzi schemes. Karatbars international, OneCoin, MMM and several others have all had run-ins with the authorities. In December 2016, Vemma paid a $238 million settlement to the US Federal Trade Commission (FTC) for non-compliance issues. Iโd suggest reading sites like BehindMLM.com and ThompsonBurton.com to keep abreast of current events.
Changing regulatory framework
Trade and securities regulators have pushed network marketing companies to base their compensation models on sales commissions, rather than on recruitment. They take issue with firms who pay people to simply find others to join instead of actually selling the product (Vemma, for instance). Itโs likely that regulators will continue to scrutinize the MLM industry.
Your asset can disappear
If the company folds or terminates its relationship with you, that will destroy the asset you spent years building. MLM participants are reliant on the good standing of the company. One way to hedge against that risk to is to maintain close relationships with those in your downline. They would then be more likely to come with you if you choose to switch businesses.
Costs
Most network marketing businesses come with some sort of fee to join. It will usually be in the form of a minimum monthly product purchase, a start-up fee or an annual membership expense. Moreover, there are often incentives to pay more in order to upgrade or qualify for higher bonuses.
You could also look at it from a different perspective, though. Most small businesses come with start-up costs. Paying a few hundred or a few thousand dollars to participate is cheaper than a lot of other ventures.
credit:- Alexis Assadi
