Are All MLMs Ripoffs?

First, let's get one thing straight: If someone you know becomes a "representative" for a line of products, and he is not a celebrity, he is almost certainly involved in multilevel marketing. This means the sales force is compensated not just for what they sell but for recruiting more salespeople. The Direct Selling Association says that 99.6 percent of people engaged in person-to-person sales are part of multilevel marketing programs.

Does MLM spell rip-off? The sales structure has critics who say MLM companies by definition exploit new recruits to profit off unsellable goods.

One of the most vocal critics is Utah's Jon Taylor, a former MLM sales rep who has pushed for stricter regulation. Taylor researched hundreds of companies and identified five "red flags." All the companies Taylor considers exploitative ? he lists 350 on his Web site, mlm-the

truth.com ? focus more on recruitment than on real sales, he says. In his view, they're more like pyramid schemes. According to his research, more than 99 percent of salespeople in these companies lose money.

Companies engaged in direct sales don't see it that way.

"No one should lose money in direct selling," said Amy Robinson, spokeswoman for the Direct Selling Association, whose membership includes companies on Taylor's list. The association's code of ethics requires companies to offer a buyback policy to prevent sellers from suffering financial losses, she said. The median income is $2,400 per year.

But are the goods overpriced? One of Taylor's red flags is if the company has more than five levels of associates all taking a cut of a single sale.

"They have to jack up the price to pay off all those people, especially those at the top," he said.

Value, of course, is in the eye of the beholder. Some see added value in buying from someone they know, in their own home or at a party. The fact that there is a party can be a good sign, Taylor said, that the company is trying to sell the product to the public and not just to new recruits.

Taylor recommends researching items and brands offered by home-party friends the same way you would anything else. Look at online reviews and comparable items on retail sites.

But do people really buy from their friends because they think the products are a good deal? Many of us are what Taylor calls "sympathy buyers."

In that case, ask your friend how much she gets to keep out of your purchase price.

If the company your friend joined seems exploitative, a token purchase may do more harm than good. If the offer looks like a bad deal for you or your friend, there's no need to lecture. Miss Manners and the Direct Selling Association agree that it's polite to simply decline.