Part of the guide: Network Marketing Lead Generation
I have been around this industry part-time since 2002. Over twenty years of watching companies launch, peak, and quietly disappear has taught me that most of the arguing about whether a given opportunity is “legit” is arguing about the wrong thing. People debate the founder’s backstory, the science on the label, the compensation plan’s binary versus unilevel structure, the timing of the ground floor.
None of that decides anything. One question decides almost everything:
Would this product still sell, at this price, to people who will never join?
That is the end-user customer test. Everything below is a way of asking it precisely enough that the answer can’t wriggle.
In this guide
Why this is the question regulators ask too
This isn’t my private opinion dressed up as a rule. The FTC’s Business Guidance Concerning Multi-Level Marketing puts the emphasis squarely on whether compensation is ultimately driven by “sales to end users” rather than by wholesale purchases participants make to qualify for the plan. The FTC’s consumer-facing guidance on MLMs and pyramid schemes makes the same point in plainer language: if the money comes from recruiting rather than from selling product to real customers, you are looking at a pyramid regardless of what’s in the box.
You can see the same logic in enforcement. When the FTC settled with Herbalife in 2016, the order restructured how the company could pay people — tying full multi-level compensation to verified sales to genuine retail customers rather than to distributor purchases. Regulators kept the company. They changed who had to be buying.
So when you evaluate an opportunity, you are not being paranoid by asking where the revenue comes from. You are doing the exact analysis a regulator would do, just earlier and for your own benefit.
Before you start: get the documents
The test only works on facts. Ask for, and actually read:
- The current income disclosure statement (the full one, not the highlight slide)
- The full compensation plan document
- The retail price list and the distributor price list, side by side
- The return and buyback policy
- The policies and procedures
If a company or an upline can’t or won’t hand these over, you already have your answer. That reluctance belongs on your list of MLM red flags, and it is one of the loudest.
The checklist
Run all ten. Write down a pass or fail for each. Don’t average feelings — count.
1. The stranger price test. Is there a published price at which a non-participant can buy, without joining anything, without a “membership,” without a discount club? If the only real way to buy is to sign up, there are no end users. Fail.
2. The shelf comparison test. Take the product to its actual category and find three comparable options with no compensation plan attached. If the opportunity’s product costs meaningfully more and the extra is defended entirely by proprietary blends, patented delivery, or “you can’t compare it,” you are looking at a price built to fund a comp plan, not a product built to win a shelf.
3. The never-joins ratio. Of all product sold last year, what share went to people who are not participants and never intend to be? Ask directly. Ask for the number. Companies that are proud of this figure publish it. Companies that aren’t will redirect you to “personal consumption is legitimate consumption” — which is true, and also not an answer to the question you asked.
4. The comp-plan-disappears test. If every commission stopped tomorrow, would your customers reorder next month at the same price? Be honest. This is the single question that most cleanly separates a product business from a recruiting business, and it’s the heart of what I wrote about in the complexity trap and the real customer.
5. The qualification test. Read the comp plan and find every place where your rank, your commission percentage, or your eligibility depends on your own monthly purchase volume. Some personal volume requirement is normal. A plan where advancement is driven mainly by what you and your recruits buy — rather than what your organization sells outward — is a plan that pays you to consume.
You have been paid late before
You have watched the number on the dashboard not match the number in your account. What is different now is simple: it settles on a public contract you can check yourself, not a dashboard I control.
Read the contract →Most participants earn little to nothing. No income is guaranteed. You can verify every payout on the public smart contract.
6. The entry cost test. What is the minimum spend to get started and to stay “active”? Separate the genuine business tools (a website, a starter kit at cost) from inventory you are buying to hit a number. If a meaningful share of your startup cost is product you don’t yet have a customer for, the company has moved its inventory risk onto you.
7. The buyback test. Does the company repurchase unsold, resalable inventory from anyone who quits, at a fair percentage, with a reasonable time window? This safeguard exists precisely because loading distributors with inventory is the classic mechanism of a pyramid. A weak or heavily conditioned buyback policy tells you what the company expects to happen to your garage.
8. The disclosure math test. In the income disclosure, find the median — not the average, and not the top-tier examples. Then find the definition of “active participant,” because that definition controls who is in the denominator. Then subtract what the plan requires you to spend to stay active. Do that arithmetic before you feel anything about it.
9. The room test. Sit through a company event or a team call and count. How much airtime goes to the product, its results, and how to serve a customer — versus rank advancement, car bonuses, and residual income? Culture reveals the business model faster than documents do. If the product is a prop for the money story, the product is a prop.
10. The friend test. Would you recommend this product, at full retail, to a close friend you are certain will never join — and be glad you did six months later? If you hesitate, you already know.
How to score it
Three or more fails and you should walk. Not “negotiate,” not “join and fix it from the inside.” Walk.
One or two fails in categories 5 through 8 are structural and worth pressing on before you commit — those are plan-design problems, and plan design doesn’t change because you asked nicely. Fails in 1, 2, 4, or 10 are fatal, because there is no version of this where you build a durable business selling something nobody would buy on its merits.
A pass here doesn’t guarantee you’ll succeed. It guarantees that if you work, the work compounds toward something real: customers who reorder because they want the product. That’s the foundation that makes it possible to recruit professionals rather than only recruiting people who need to believe.
Why I care about this one
I stepped back from doing network marketing seriously years ago, and the reasons come down to this test more than anything else. The pattern I kept seeing was not fraud in the cartoon sense. It was decent people building on products that only made sense inside the compensation plan — and then working twice as hard to compensate for a foundation that couldn’t hold weight.
The same pattern keeps reappearing in new packaging. Every few years it puts on a new outfit, most recently trading supplements for tokens and prediction markets, which I unpacked in the MLM playbook didn’t die — it bought crypto. The costume changes. The test doesn’t.
Run the ten questions on whatever is in front of you right now. Then run them on whatever you’re already in — that’s the harder one, and the more useful.
If you want to see what passes this test in my own stack, my recommended products page shows what I actually use and why.
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Get paid 100%, on-chain, the second the sale clears
Most affiliates earn little, and that is disclosed up front. The difference here is not a promise about what you will make. It is that you can verify every payout yourself, on a public contract, in about twelve seconds.
See how the payout works →Most participants earn little to nothing. No income is guaranteed. You can verify every payout on the public smart contract.
The strongest case against this checklist, and I don’t fully hold it myself, is that it assumes documents reflect practice. The Herbalife case the piece cites resulted in a restructured order, which means the pre-2016 paperwork presumably looked compliant enough to survive scrutiny for years before that settlement. If you’re vetting a company today, reading the ten documents tells you what the company is willing to put in writing, not necessarily what happens in the room in point nine, the culture check. The best defense of the checklist is that points nine and ten exist precisely to catch that gap.
Walt’s gap, condensed: documents show intent, behavior shows reality, and only checks nine and ten, the room test and the friend test, actually measure behavior. The other eight are paperwork checks. One thing I’d add that the piece doesn’t cover: who wrote the income disclosure and audited its numbers matters as much as what it says, and there’s no check here for that.
Meera’s point about who audits the income disclosure reminds me of the health inspector who used to come by the diner. Anybody can keep a clean-looking binder for the one day a year someone checks it. What told you the real story was walking the kitchen on a random Tuesday. This checklist has one random-Tuesday item, the room test, buried at number nine. I’d have put it first.
I think what’s being missed in some of this is that Walt is arguing the strongest case against the checklist, not his own view, and even that strongest case only gets you to ‘documents aren’t sufficient,’ which the piece already says explicitly with checks nine and ten. Graham and Meera are both filling in exactly the gap the piece names rather than finding a new one. That feels less like a hole in the checklist and more like the checklist working as intended.
Twenty-two years in corporate, and that documents-versus-behavior gap is why M&A due diligence always includes a site visit, not just a data room. This industry seems to have stopped at the paperwork.