Illegal selling methods
Some methods of selling are illegal.
Referral selling
Referral selling is illegal, but not all referrals are considered 'referral sales'.
It's illegal to persuade customers to buy a product by making promises about benefits they'll get for successfully referring new customers to the product. Benefits might include rebates and commissions.
You can offer rewards to a customer for referring their friends or sharing friends' contact details, as long as you give them the reward even if their friend doesn't buy anything.
It's not referral selling if you offer a reward:
- after a customer has already bought something—for example, you offer an existing subscriber a 1-month free subscription if they successfully refer a friend
- for providing names of potential customers—for example, supplying a gift voucher in exchange for names of people who might be interested in buying something.
Pyramid schemes
Pyramid schemes make money by recruiting people rather than selling a legitimate product or service.
In a typical pyramid scheme, members pay to join. The only way they make money is by getting other people to join.
It is illegal to promote or participate in a pyramid scheme.
Pyramid schemes will sometimes disguise themselves by offering a product or service. However, it will be excessively priced or poor quality. The main method of making money from the scheme is still recruitment, not the sale of goods or services.
Pyramid schemes are different to multi-level marketing where people make money selling a genuine product or service, rather than from the recruitment of other people.
More information
- Read the Avoid unfair business practices guide to understand how to comply with Australian Consumer Law.
- Subscribe to the Smart Business Bulletin for relevant new and tips for making your business a success.