MLMs – Multi-Level-Marketing schemes – are a shifty bunch. They can be hard to identify, and sort of like a cult (ahem), can be even harder to spot if you’re already inside of one.

You’ve probably gotten messages from “friends” you had back in high school, and after a few minutes of catching up, you find yourself being pitched leggings or candles or cookware or essential oils, or anything, really.

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Sometimes, it’s pretty obvious when a company’s structure exists only to benefit the few at the top, and other times, you might feel conflicted at whether or not it might be okay to support an actual friend in a new venture.

If you’re wondering how you can tell the difference between a MLM and legitimate business venture, well, keep reading.

What’s a MLM?

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A MLM might also be called “direct sales” or “network marketing” and involves, as the name indicates, selling a product directly to friends, family, and other customers. The seller is essentially a contractor for the company, buying the product and then reselling it for commission.

They’ll usually sell the goods by direct presentations or “parties” where people are encouraged to bring friends, or sometimes (as you know) trying target people through social media.

Sellers are also financially rewarded for recruiting more salespeople to work underneath them.

Why Is It Shady?

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On the surface, many of these companies can seem like a legit way to make extra money on the side, but most of these companies have some pretty terrible business practices, like operating as pyramid schemes forbidden by the Federal Trade Commission.

Anywhere from 75%-99% of people who sign up make $0, while many of that number end up losing a significant amount of cash before they can get free and clear. The companies typically target women like single mothers, military wives, and stay-at-home moms looking to make their own money.

Not only that, but the products are often subpar, and the people involved can put their personal relationships at risk when they get desperate to make back their money.

The 4 Key Signs a Business Is a MLM

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  • The pitch comes from someone you know.

The strategy is for consultants to use their own contacts to make sales and sign up new “employees,” so you won’t hear about it from a store or website.

  • It has a pyramid structure.

Pyramid schemes are illegal, but that doesn’t mean they don’t exist. Watch out for companies that encourage customers to become consultants – it’s likely the person recruiting you stands to make a percentage of your sales.

  • Anyone can join.

There’s no interview, no experience required, and no references are called – if you have the money or the credit to buy the inventory, you’re hired.

  • Consultants are the biggest buyers.

If the salesperson seems desperate, it’s probably because they’ve already spent hundreds of dollars (or more) on inventory. They need products to host parties and to keep up with the latest releases, and the MLM forces them to buy upfront – often with no return policy if things aren’t sold.

Some popular examples include Herbalife, Amway, LuLaRoe, Beach Body, Color Street, Cutco, Enagic, HempWorx, Monat, Primerica, and Pure Romance, but they’re far from the only perpetrators.

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If you’re wondering whether or not something is an MLM, you can check the Direct Selling Association‘s directory, Reddit’s anti-MLM mega-thread, or MLM Truth’s master list before buying or, heaven forbid, getting involved on the sales end.

Basically, do your due diligence before investing your hard-earned time or money into any business you hear about through the grapevine.

It’s very good advice, I promise.