CAI

Consumer Awareness Institute

Non-profit Corporation

Red Flag #1: Participants are recruited in an endless chain of participants.  

Important Background for 
Red Flag #1: 

With the chaining feature in an MLM compensation and  marketing plan, each person recruited is empowered and given incentives to recruit other participants, who are empowered and motivated to recruit still other participants, etc. – in an endless chain of recruiters recruiting recruiters – without regard to (de facto) market saturation.  

All network or multi-level marketing (MLM) programs, no-product pyramid schemes, and chain letters have this recruitment chaining characteristic in common. You would be wise to avoid any program in which you are recruited into a chain of participants (distributors, agents, representatives, etc.), which are organized into multiple levels, especially where the position in the chain or hierarchy of participants is determined by timing of entrance into the program and/or by success at recruiting a downline of participants. While a few earn substantial profits, the vast majority of participants in such programs lose both time and money.

In at least four studies, chain selling schemes that feature unlimited recruitment in an endless chain of participants have been found to be uneconomic; i.e., not profitable except for a tiny percent (less than 1%) of participants at or near the top of their respective pyramids. Yet MLM promoters typically present their programs as outstanding business or income opportunities  This fallacy is at the heart of a maze of misrepresentations used in MLM recruitment. Whether or not law enforcement interprets the chain selling program as an illegal pyramid scheme, it can be considered an unfair trade practice – or unjust enrichment of a few at the top of a pyramid of participants at the expense a downline of misled participants, the vast majority of whom are mathematically pre-determined to lose money.

It should also be noted that quality of products or services often becomes questionable when incentives are tied to recruitment. This would apply to such products and services as health products, investments, or internet services. But even if the products are of exceptional quality, it is the inherently fraudulent design of the chain-selling program that misleads people into participating against their own best interests. The vast majority of recruits are destined to lose both time and money.

For most chain selling programs (multi-level or network marketing, etc.), income is dependent primarily on downline recruitment of participants who will buy (or subscribe to) products to “play the game.” As a general guideline in evaluating MLM programs, if you must recruit to be successful, or if the primary emphasis in the compensation plan is on building a downline, it is not a viable income opportunity except for those at or near the top of the pyramid. And you must decide if your success at the expense of so many victims will leave you with a clear conscience.

Click here for more on the following related topics:

• Is saturation inevitable?

• Do MLM companies sell products at retail?

• Recruiting MLM’s become Ponzi schemes.

• Does unlimited recruiting doom participants to failure? 

• The ill-fated Amway decision.

To determine if Red Flag #1 applies to the  program you are evaluating, ask:

Would you, as a new recruit, be permitted and even encouraged to recruit other participants, who would in turn be encouraged to recruit others, and they still more, etc. – from whom you could collect commissions and/or bonuses on what they buy or sell?

If the answer is “yes,” click “yes” below to Red Flag #1– Participants are recruited in an endless chain of recruitment.  

REMEMBER – aside from the standard job market (and MLM) – there are many satisfactory alternatives for earning an income outside the world of MLM/network marketing. Almost any of them are superior to recruiting MLM's. Read more about them in the article "1,357 Ways to Make a LOT More Money than in MLM/Network Marketing"