Meaningful terms and definitions you should know to determine multilevel marketing scams, pyramid schemes and false multilevel marketing companies. I think before we can talk about any home-based opportunity, we need to first determine what some terms really mean. Let’s start with the terms Scam. The term scam means a fraudulent business scheme to defraud; swindle. A Scheme is a secret or devious plan; a plot, but is also a systematic plan of action.
Scheme: A secret or devious plan; a plot or a systematic plan of action.
MLM: Multi-level Marketing – Generally speaking refers to a marketing strategy of the company’s sales force that is compensated not only for personally generated sales but also of the sales from salespeople that they recruit. It is a multilevel payment arrangement in which the salesperson gets paid on multiple levels. The direct sales company that uses multilevel marketing generally does not advertise and works on a word-of-mouth model.
Direct Sales: Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location.
Pyramid Scheme: A fraudulent moneymaking scheme in which people are recruited to make payments to others above them in a hierarchy while expecting to receive payments from people recruited below them. Eventually the number of new recruits fails to sustain the payment structure, and the scheme collapses with most people losing the money they paid in.
Ponzi scheme: A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.
Cold Market: Prospects outside your circle of friends, family, and associates.
Warm Market: All potential prospects for your business whom you personally know, either because they are family members, friends, or business associates. Further, you come in contact with and to initiate a conversation.
Single-Level Marketing – Salesperson is paid only for the sales he/she makes themselves.
Independent Representative, Associate, Consultant, Agent, Contractor – Refers to an individual who chooses to Independently represent a company’s products or services, according to that company’s Terms and Conditions, as well as Policies and Procedures. Normally, earnings are reported via 1099.