Tag Archives: FTC

Evaluating A Home Business: Up-Front Costs

In this next installment in my series on evaluating a home business, I want to address the second aspect of Following the Money: the issue of what it costs you in the form of the up front investments.

You can find home businesses to join that vary greatly in their initial investment as well as the price of monthly fees or auto-ship.

Cost to Join


Just because it’s free to join doesn’t necessarily mean it’s a great deal. Nor does it mean it’s a bad deal. Generally speaking, affiliate marketing is usually free to join. You can go to Click Bank to find products to sell. But affiliate marketing has it’s own issues, as I wrote about earlier.

Up-Front Costs

What are the Up-Front Costs of your new home business?

I’ve even seen network marketing businesses that were free to join. Honestly, it was merely a gimmick to get warm bodies, because the “business” was questionable if not worthless! (Not talking about companies that have occasional free or $1 specials here & there. It has to make sense. If not, ask why!)

In this industry, you very often do get what you pay for. Do you really expect to start a business that can change your life in a matter of months (or even a year or two) if it costs nothing to get started? Those companies are shoddy to begin with: products are garbage, compensation is minimal, and it will most likely shut down in a year or so. You’re never going to make the job-replacing income you’re seeking with them.

I hear so many people say, “I don’t want to pay anything. I need to make money, not spend it.”

My answer to that is “get a job,” because that’s exactly what you’re looking for. You’re NOT looking for a business. A business person EXPECTS to invest some personal funds to start a new business. What we’re talking about in this article is how to evaluate whether that investment is reasonable.

And really, a job costs more than you realize…

  • You at least have to pay for transportation to get to & from work: a car with gas & maintenance, or public transportation (if it’s available to you). I know people who are “disabled” and can’t drive who are making good 5- and 6-figure incomes from home. No car required.
  • You most likely have to purchase (at least) business casual clothing for your job. I know several home-biz millionaires who often say, “I don’t work from home so that I can wear uncomfortable clothes.” They practically live in shorts, t-shirts, & flip-flops.
  • If your job requires a uniform, I’m sorry. Because most likely, it’s a physically demanding job and your body can’t do that until you reach the age of retirement. Hope there’s room for advancement.
  • The cost of stress on your body due to dealing with office politics, bad bosses, and rude customers is NOT worth it!

Small Fee:

Some affiliate or network marketing business are free or only require a small administrative fee to join. A really good and legitimate company will usually be in this group. Why?

  • Because they know that most people who are looking for a home business don’t have “franchise” money laying around. And it doesn’t make sense to require a HUGE buy-in when there’s not a brick & mortar business with it’s inventory & high over-head involved.
  • One of the things the Federal Trade Commission (FTC) looks at is what people pay to join and what that money actually pays for. We’ll talk about this again in a moment. So a high initial investment is a big red flag that’ll bring unwanted government scrutiny.

Even some affiliate programs require a small enrollment fee. Remember what I said in my article What Am I Paying For? It’s up to you to determine if this is affordable and fair.

High Buy-In:

When I first got started in the home business industry (in the early 1990s), the going rate for a “biz in a box” buy in was $500. They explained that this price was determined based on basic psychology of the average adult. What people get for free or cheap, they don’t value. Somehow, $500 was determined to be the “just right price” between being perceived as “too expensive” and being perceived as “not valuable.”

Since that time, I’ve seen travel businesses in the network marketing (MLM) industry go for as much as $3000! I said then and I’ll say today – even when I’ve made money in this industry – that anyone who has that much money to blow on a home business “has more money than they do sense.”

Of course, that’s not the norm… The average “high buy-in” company will still cost anywhere from $300 or so, to as much as $1200.

Again, you need to determine for yourself, AFTER you’ve looked at all other components of this business model, whether or not the initial cost is affordable and fair. AND you need to decide whether it’s a fair price for whomever your potential customers and/or partners will be.

But the Federal Trade Commission (FTC) wants to make sure that a company isn’t just making money from, nor paying it’s representatives from, the buy-in payments. If you or your company is making money off the sale of “business kits” or “enrollment fees” the FTC will shut you down as a Ponzi scam faster than you can say… well, Ponzi! The company and its reps must be paid from the sale of legitimate products and/or services, even if they’re digital (online). So, remember that, according to the FTC, profits from the sale of products and/or services is the only legitimate means from which to earn income from home.

That’s why we’ll talk about recurring costs in the next article. 

What is a Ponzi Scheme?

If you’re considering or are already operating a home business venture, you’ve probably asked this question or had someone ask it of you: Is this one of those pyramid scams or Ponzi schemes?

If someone has to ask this, then they actually don’t know what a Ponzi scheme (commonly called a pyramid) actually is. Because if they did know what it is, there are some certain questions to ask (either themselves or the person trying to “sell them”) that would answer this question definitively.

So, what IS a Ponzi Scheme?

A pretty clear definition provided at FirstClassMLM.com is:

A Ponzi scheme is an illegal investment scheme that involves paying returns to investors out of the money paid in by later investors, rather than from net revenues generated by any real business. According to the FTC (Federal Trade Commission), “…there is an expression that nicely summarizes this scheme: It’s called “stealing from Peter to pay Paul.”

(By they way, FirstClassMLM is a great site to help you answer all kinds of questions about the industry.)

What questions can you ask to make sure what you’re doing is legal?

Based on that definition, then, what questions can you ask yourself or Mr. Salesman to help you know whether or not what you’re looking at is a legal venture?

  1. What am I paying for? Am I getting anything in return for my money? Is there a real product or service of equal or greater value that I receive in exchange for my money? If so, would I consider it a fair exchange should I never, EVER, receive any other compensation or product or service from this moment on?
  2. If I am doing this so that I receive future compensation (any return on the investment whatsoever) in exchange for my money, then where does that money come from? When I do the math, is there enough money coming into this “system” to pay me and everyone else who expects the same? If it’s not an investment, per se, then how are funds being generated to re-compensate me for my money?
  3. Those two question threads would help you determine if what you’re doing is legal in the eyes of the FTC, but I propose one last question to determine if it’s ethical: the first 2 questions being satisfied, if there are any funds left as “profit” from my (and everyone else’s) purchase or investment, then where does that money go? Who gets it and what are they using it for? After all, you don’t want to be funding a terrorist group. Helping the homeless or feeding the hungry would be nice, but even if it’s pure profit for a private individual or group, you just want to be sure you’re not funding anything that would cause harm to others.

If you’re not getting anything “up-front” in exchange for your money (in other words, the money you “pay” isn’t for a “purchase” of goods or services), other than an expected future compensation, then you might want to say “no” to this endeavor because the FTC might call it a Ponzi, shut it down and prosecute everyone involved.

That actually depends on whether or not this is an investment program, in which your money is being invested so that it would earn dividends or interest. In this case, you aren’t “purchasing” anything, but investing your money with an expectation of growth, knowing full well that (markets being what they are) you might loose your money instead. Most of us call that gambling, but the FTC calls it trading stocks and bonds. ;)

In the end, only you can determine if what you’re doing feels good in your gut. Don’t let claims of big money turn your head. Always be aware that it’s quite possible that you’ll never get your money back. So you need to know that if that should happen, you’re happy with what you’re getting in return for your money. AND you’re satisfied that anyone else participating in it would feel the same.

What to do if you discover it’s not legal?

If you ponder and ponder and ponder and are finally able to put your finger on what bugs you about something, then don’t keep it to yourself. Talk to the person who’s trying to convince you to follow them. It’s been my experience that sometimes people just overlook something. They are human after all, and appreciate another perspective on the matter.

Ponzi King, Bernie Madoff

Ponzi King, Bernie Madoff

How did Bernie Madoff get away with it for so long?

Ok, so Bernie was the “investment king” for a while. People were confident that he knew what he was doing and could help them. Unfortunately, he was a big fat liar. While everyone understood that he was investing their money for them, in socks, bonds, and business investments so that they’d earn dividends and interest, he was really keeping the money for himself. Every once in a while he’d take some money from new “investors” to give to the older investors as if that was their profits from the investments. Stealing from Peter to pay Paul – quite literally.

Is Network Marketing a Ponzi?

While some network marketing programs have been shut down because they were ruled by the authorities to be a Ponzi or pyramid scam, most are not. That’s because they are backed by companies that offer real products and/or services to real people who really want them. Therefore, the two questions to consider per the FTC’s definition are perfectly satisfied. The best test being that there are some “customers” who are perfectly happy with the products/services they received in exchange for the money paid.

If you’re looking for a legal company to get work with to either supplement or replace your income, visit http://freedom.danniellewood.com and either fill out the form on that page or contact me via either of the methods at the bottom of the page. I’ll help you get the info you need, 3-way you to our team, and answer your questions, so you can gauge our integrity, and decide if you want to work with us to change your life. Beginning right now.