This is Myth 2 of 10 Myths of Direct Selling from The Direct Selling Association…

MYTH #2: Most direct selling companies are pyramid schemes that are doomed to fail.
FACT There’s a big difference between legitimate direct selling companies and pyramid schemes. Pyramid schemes seek to make money from you (and quickly). Legitimate direct selling companies seek to make money with you as you build your business (and theirs) by selling real products and services. In fact, legitimate direct selling companies work hard to protect consumers from pyramid schemes. Before you sign up with a company, investigate carefully. A good way to begin is to ask yourself these three questions:

1. How much are you required to pay to become an independent consultant?
If the start-up cost is substantial, be careful! The start-up fee in direct selling companies should generally be low and cover the cost of your start-up kit (usually sold at or below company cost) which can include training materials, sample products and other items to get your business going. These companies want to make it easy and inexpensive for you to start selling. Pyramid schemes, on the other hand, make nearly all of their profit on signing up new recruits. Therefore, the cost to become a distributor is usually high.

2. Will the company buy back unsold inventory?
If not, beware! Legitimate companies that require inventory purchases will usually “buy back” unsold products if you decide to quit the business. Some state laws and the DSA Code of Ethics require buy-backs for at least 90% of your original cost.

3. Are the company’s products sold to consumers?
If the answer is no (or not many), stay away! This is a key element. Direct selling (like other methods of retailing) depends on selling to consumers and establishing a market. This requires quality products, competitively priced. Pyramid schemes, on the other hand, are not concerned with sales to end users of the product. Profits are made on volume sales to new recruits, who buy the products, not because they are useful or attractively priced, but because they must buy them to participate. Inventory purchases should never be more than you can realistically expect to sell or use yourself.