What makes multi-level marketing a high risk business?

What is multi-level marketing?
Some high risk merchants work with a type of business known as multi-level marketing, or network marketing. This type of business model allows the parent merchant to market products to its customers by means of direct selling as well as relationship referrals. There are several different types of facets to this type of model:

1. Independent salespeople represent the parent company. These salespeople are typically unsalaried and are known as distributors. They are awarded a commission based upon the amount of products sold through their independent businesses.

2. Distributors develop their own organizations. These independent salespeople develop their customer base by either selling to more customers or by recruiting their own downline distributors—who, in turn build a new customer base.

3. Distributors earn their commission based on the sales efforts of their organization. Earning a commission is based on not only selling products out of the parent organization, but also on leveraging the sales efforts of the downline. Usually, several different levels of people can earn royalties from a single person’s sales.

Is multi-level marketing legitimate?
Yes. Just keep in mind that in order to be a legitimate business model, the commissions need to be earned only on sales of products or services, not on recruiting new distributors alone.

What makes multi-level marketing salespeople high risk merchants?
There are a lot of factors that make this type of business model somewhat high risk. Often, people who are attracted to this type of sales activity are individuals who have tried many different types of sales and may have a less than perfect credit history. Further, many MLM companies discover that their new customers may neglect to pay for the items they purchase, or they use a fraudulent credit card. For this reason, many modern MLM businesses limit their sales to customers who can go through verification of their credit cards.

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