Is Monat A Pyramid Scheme?

The two terms at the core of this question are Multi-level Marketing (MLM), also known as Network Marketing, and Pyramid Schemes. MLMs are legal business models, while pyramid schemes are illegal business practices.

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Monat is not a pyramid scheme but a legitimate MLM business selling haircare, skincare, and wellness products. Monat declared that the ingredients used in its products are USA, Canada, and EU approved. Potential distributors can assess Monat’s reputation from customers and employees online.

The rule of thumb is that all pyramid schemes are MLMs, but not all MLMs are pyramid schemes. I will observe legal Multi-level Marketing businesses and illegal pyramid schemes, noting the differences between the two. While describing Monat’s MLM business model, I will point out areas that need scrutiny by those who wish to become a Monat partner.

• Is Monat A Pyramid Scheme?
  • What is an MLM?
  • How Can I Spot A Viable MLM?
  • When Is An MLM A Pyramid Scheme?
• Protecting Myself From A Pyramid Scheme Disguised As An MLM
• Before You Sign That Contract

Is Monat A Pyramid Scheme?

We have already answered this question (Monat is not a pyramid scheme). But we need to take a closer look at the definition of the two business models. One is legitimate, and the other isn’t. Spoiler: it is difficult to distinguish between the two.

What is an MLM?

Multi-Level Marketers argue that selling to an established consumer network makes good business sense. MLM participants sell products to family members and friends and recruit others to become contributors. The term “level” refers to a group of people who have the same upline leader and the same number of persons between them and that leader.

While all levels of a layered structure of MLM have the same leader, only the topmost level has a direct connection to the leader. When distributors in each level sell the product, a percentage of that sale will trickle up to the leader, a part of his income.

Each MLM system has its own rules, but earning potential is usually based on goals set for each seller at their specific level. Each contributor will get a commission from those positioned under them, the one they have recruited. In addition, as more levels are added, each leader gets commission from all the distributors in their downline structure.

MLM distributors are incentivized to recruit people who sell products retail and recruit other distributors. In a viable MLM program, distributors earn money by selling products to retail customers who are not part of that program. Distributors also earn a commission from people they have recruited to become distributors and sell products.

How Can I Spot A Viable MLM?

According to the Federal Trade Commission (FTC) Consumer Advice website, the first thing to check in a potential MLM is the company’s recruitment policy. A viable MLM pays you for what you sold. You are not required to keep recruiting new distributors and buy more stock to earn a commission.

A viable MLM operation involves selling consumer products by independent distributors, who are remunerated for selling to end consumers and not to other distributors. The direct sale of consumer products requires further investment by the company in marketing and after-sale support.

When Is An MLM A Pyramid Scheme?

Pyramid schemes exploit their distributors by paying them primarily for recruiting new distributors rather than for selling products and services to customers. Here are six warning flags that an MLM company may be a pyramid scheme.

Naturally, no pyramid scheme will ever advertise itself as such. It is up to potential distributors to look for indications that the MLM they are looking at may not be what it says it is. Your first warning flag is if the MLM requires that you pay cash to ‘buy in’ into the business in training programs, seminars, sales kits, and expensive stock.

Secondly, you must purchase company products and be encouraged to sell them to your family and friends before trying to recruit them. The second warning flag is raised when the MLM rep tells you that your “downline” of distributors you recruited that are now recruiting others could earn you “big bucks” and produces other distributors’ testimonials.

Naturally, rags-to-riches stories written by other distributors should be treated cautiously, as do earning tables claiming new recruits could make you a lot of money. When it focuses on recruitment rather than the sale of its products, the company strays from the MLM principle of “sales before recruitment.” Up goes the third warning flag.

The company’s stocking requirements are another telltale sign. The company may require newcomers to purchase stock when joining the program and regularly afterward, primarily for sale to other potential recruits. The danger of overstocking without adequate, documented company buy-back procedures raises the fourth warning flag.

Company distributors looking for recruits use power language and emotional sales tactics to bully the listener into joining the program without taking the time to check the offer. This is the fifth warning sign. Reps offer carrots like “earn thousands every month” and a stick “opportunities don’t disappear, other people grab them.”

The sixth warning flag relates to market saturation. Company reps promise endless earning opportunities. They say that all you need to do is recruit new distributors who will then recruit others, guaranteeing you a steady income. This logic is flawed. Before long, distributers will run out of buyers.

A few years ago, a Reddit contributor calculated that if a person recruits only five people who then go on and recruit five people each, and so on, within 15 cycles, the MLM will outnumber the world’s population. Market saturation is not an imaginary concept. It is a real challenge that contradicts the Reps’ promises of endless income streams.

Protecting Myself From A Pyramid Scheme Disguised As An MLM

Insist on taking all the time you need to learn more about the company before investing your money and time. Resist any attempts to make you sign immediately. Today’s great MLM opportunities will be here tomorrow, as well. Your first port of call is the search engine, but first, ask for all the forms you are expected to sign.

Conduct a search on the company’s name with keywords like scam, complaints, review, and FDC. Look up further for information on the company in the engine’s ‘news’ section. You can also use the Better Business Bureau (BBB), the FDC, and the Attorney General in your state. Use them to look for information that could tell you about the company.

Here are a few suggestions about clues. Is this a new company? Does it enjoy a positive reputation, and are its customers happy with the products and services the company provides? What about employees – were they happy with their working conditions? Did they earn as much as they were promised?

The trail of complaints and the legal history associated with the company can tell you a lot about its practices, at least the practices that were challenged as complaints or court cases. Lastly, go through the company’s website and read through the regulations and policies. Compare these with the regulations in the forms you were asked to sign.

Make a list of all the questions you may have, then make time to see the Rep. Make a list of their answers. Don’t be bullied into accepting vague answers and insist on having all responses in writing. If they can’t give you written undertakings before you sign on the dotted line, they are not likely to do it once you are on the program.

Before You Sign That Contract

Your best practice involves in-depth research of the company and a thorough read and study of its documentation, further inquiries about its employment, remuneration, commission structure, hidden expenses and undertakings, promotion structure, and the support the company offers its distributors.

Discuss this with people you know and trust, family, colleagues, and friends who have professional qualifications and can help with financial or legal advice. If the reps try to get you to sign anything before you are ready to do so, you may consider letting this offer go and lookout for a better opportunity.