Many of us who choose to call southern Utah home enjoy (okay, are addicted to) adventure travel. Whether it’s diving in Belize, hiking in Alaska, or climbing the cliffs of Zion, nothing quite beats the thrill of tackling physical challenges while experiencing the wild wonder of our beautiful natural environment.
Unfortunately, the thrill doesn’t come cheap! Even if you opt for a staycation, the cost of gas, gear, and permits can add up. If your regular salary doesn’t provide a big enough vacation budget, you may have considered a side hustle to help fill your adventure fund. One popular way to make some side money is to join a multilevel marketing company (also called MLMs).
Multilevel marketing is a business model in which participants sell a company’s products to customers (usually online or through home parties) and are granted the right to recruit other participants to join the company. Participants primarily earn compensation in the form of commissions on product sales to their own customers as well as commissions on product sales sold by their recruits.
MLMs come in many varieties—differing in company culture and product lines—and sell everything from travel packages to beauty products to sports nutrition. Once you find one that feels like a good fit, it’s important to make sure it is legitimate and operating within the confines of the law.
Unfortunately, not all companies that follow the MLM model are legitimate. There are many ways MLMs can run afoul of state and federal laws and regulations, most of which exist to keep participants from falling prey to scams. Lawyers that work in the MLM space can usually spot red flags quickly. Here are some things to watch for when evaluating whether an MLM is the right side hustle for you:
Legal documents: Does the company give you the chance to review the legal documents that define your relationship with the company and explain how it operates before you apply? You should read the distributor agreement, compensation plan, and policies and procedures before you sign on the dotted line.
Entry fee/startup cost: Almost all MLMs require some kind of payment when a new participant joins. That, on its own, is not problematic. Generally, that payment covers administrative costs. If the startup fee appears to cost more than what you might reasonably pay for the covered items, this warrants a closer look. High entry costs can be evidence of a pyramid scheme.
Income disclosure: As with any entrepreneurial effort, there is an element of risk associated with running your own MLM business. It’s good to remember that some MLM participants join to get a discount, not to earn income. That said, if you are considering an MLM to earn some side income to boost that adventure fund, take a moment to review the company’s income disclosure statement.
Inventory: MLMs have gotten a bad name because participants purchased inventory to earn commissions and qualify for rank advancement or bonuses, but the inventory just piled up in boxes in their garages. The FTC doesn’t want to see consumers put in a position where they are duped into buying too much product they cannot reasonably sell. Check the MLM’s policies to make sure it has an inventory buy-back program and look for efforts that the company takes to prevent inventory loading.
Compensation for recruiting: One of the features the FTC looks for when evaluating whether an MLM is an illegal pyramid scheme is the emphasis the company places on recruitment. If the company promises compensation to participants for the mere act of recruiting, this is strong evidence that the plan is an unsustainable scheme. A legitimate MLM may incentivize recruiting, but the compensation structure must be based on the sale of real products to real customers (not to other participants).
DSA membership: The Direct Selling Association (DSA) is an industry body that seeks to assist its member companies with state and federal legal and regulatory compliance and to ensure that customers of and participants in direct selling companies (including MLMs) have a good experience. Not all legitimate MLMs are DSA members, and some DSA members have gotten into trouble. That said, DSA membership is usually a good sign. Look for a link to the DSA code of ethics posted on the MLM’s website.
These are a few of the issues we lawyers look for when evaluating MLMs. As fellow lovers of adventure travel, we know how important it is to find ways to fill that vacation fund, so make sure to be prudent when choosing your side hustle! We at Kirton McConkie wish you good returns on your investments and rewarding moments in the adventures you choose. To borrow the words of Edward Abbey, “May your trails be crooked, winding, lonesome, dangerous, leading to the most amazing view.” Happy travels!