A pyramid scam is a business model where you earn money primarily from bringing other people into the business rather than selling real products of good products.
Networking is a marketing system. It is not by itself a business. As a marketing or sales system, networking has proved to be quite effective for selling certain types of products and services directly to the consumer. It bypasses media advertising and is usually via word of mouth.
A good legitimate networking business can give you both active and passive income. As you probably know, there are two kinds of income – active and passive. Active income is earned by your actual physical effort. Passive income is earnings received with little effort. It is sometimes called “unearned” income.
It is always best to have both active and passive income to grow your wealth. Thus, networking is definitely a very interesting and lucrative source of both types of income for many.
The basic question is: How do you know if a networking proposal is legitimate?
Because networking has been successful in a number of companies, it has also been abused and twisted to the detriment of those who join with the mistaken notion that networking is a sure way to make money. Many believe that they don’t have to do much and the income will automatically pour in.
If you look closely, in established companies, the networkers who make good money are those who work hard and are able to organize their own
effective sales groups who then produce sustained high level of sales.
Their success is the product of serious planning and hard work. The network does not produce the wealth. It is the networkers themselves who achieve it. So, unless you are prepared to work hard, organize and do serious fieldwork, networking is not for you.
To be brief, the most common type (and there are many types) of networking structure that has been abused is the “multilevel” type where networkers earn income from the production of those whom they recruit and who fall under their specific structure, usually called their business center. These are called their downlines and each downline is given his own business center. This type and its other variations are not necessarily scams. As a system, it is a legitimate tool. However, when it is used to generate business through people recruitment without offering any real product or service to the members and their customers, it is pyramiding and is a scam.
CLUES FOR SPOTTING NETWORKING SCAMS
When offered to join a network, the first question you should ask is whether or not the company is duly registered and licensed with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (or its equivalent in the country where the business is offered) in the marketing of its products. Second, find out what is being sold, what is the selling price to the end user and how much is the cost to the networker.
Find out if there is a joining fee and what it is you get in return for paying this joining fee. If you are getting good value for the money you pay to be able to join the network, then possibly, the business is legitimate. If however, you have to pay a joining fee without getting anything in return, be careful. The network could possibly be a scam.
Another important consideration is the track record of the company. The longer the company has been in business, the better chance of its legitimacy. Companies with a buy back guarantee also have more credibility. Check the efficacy of their products and their training system carefully.
A word of caution. If the productor the offer to join is being presented as an investment, the company and/ or agent must produce a secondary license from the SEC (i.e., a securities broker or dealer license) to sell their investment products. In addition, the product itself, must be registered by SEC as a legitimate investment product. This is a specific SEC product registration document which specifies the total amount allowed to be sold over a specific period, which is usually a year. Finally, sales agents of investment products need to be licensed by the SEC. A networking company must have all these licenses and registration documentation in order to be legitimate.
You have to clearly understand how you make your money as a networker. The legitimate way is for you to earn based on actual selling of the products either directly by you or indirectly through your “downlines.” This means that the market price of the product allows for good commissions to be paid out.
Don’t rush in making your decision. Remember, if you make your money mainly through recruiting of new agentsand from the fees these new agents pay, walk away! That system is a scam!
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