MLM, multi-level marketing, is an industry prevalent with fraud. Read How About MLM? before you invest your money and invite your friends.
MLM is multi-level marketing also known as network marketing and direct sales. This post, How About MLM? sets out to explain the strategy which has become a subject of controversy due to dubious companies posing as MLM’s using unscrupulous business practices.
MLM is a strategy used by direct sales companies to recruit sales distributors by offering them a percentage of product sales and a percentage of sales made by others they recruit to sell. For example, Betty sells Avon and earns a percentage of the items she sells. Betty then recruits Linda to also sell Avon, so Betty earns a percentage of the items she sells plus a percentage of what Linda sells and so on.
MLM sales are generated by relationship referrals directly and the distributor’s recruits. The distributor’s recruits are their ‘downline‘ creating a hierarchy of multiple levels of compensation.
MLM is a legitimate and legal business model. With a legitimate MLM program, you can earn money from the sales you make without necessarily recruiting others to also sell.
Some individuals choose to become distributors so they can buy the products they like from the company at a discount and never sell to another. The direct sales company will still offer incentives sell their products and recruit others, but legitimate MLM companies do not require you to recruit others.
Here are some common elements of a true MLM opportunity:
- There is a small or no enrollment fee. If there is a fee, it will be for the cost of purchasing the products and services and materials used for promoting the products and services.
- The company is transparent and thoroughly explains its mission, products and services, as well as, their earning structure before you sign-up.
- A program member’s main source of profit will come from selling or offering the company’s products and services.
- A program member can make money selling the company’s products and services without signing up new members.
MLM/Amway
Though it can be traced back to the 1930’s, MLM was made successful by the founders of Amway, Rich DeVos and Jan Van Andel in the 1950’s. Originally named the American Way Association, they sold household cleaning products and later included beauty, personal, jewelry, furniture, electronic and many other products. By the early 1980’s, Amway’s gross sales rose to over a billion dollars.
How about MLM?
Growing up, I remember my mom and her friends selling MLM products. Avon and Tupperware catalogs especially were a staple. Over the years, I have sold Mary Kay Cosmetics and Park Lane Jewelry and I am currently a distributor for Forever Living Products, but that is so I can buy my favorite products at a discount.
I have a friend who sells Pampered Chef successfully. Many men and women have made good supplemental incomes this way. Some have made and continue to have thriving businesses using MLM as a strategy.
I am a member of a number of Facebook and Google Plus groups that advertise home business opportunities where MLM promotions are prominent. They are clearly as popular as ever although seem to be fad MLM’s and by that I mean they will not last due to poor products and questionable business practices.
In my experience, it does take certain interpersonal and networking skills to really make MLM work for you. If you are a social butterfly and are fortunate to have a large group of family and friends that work and play well together, then you are probably well suited and may be already selling MLM products.
The trick really is weeding out the good from the bad. Unfortunately, MLM has been infiltrated by companies that are really promoting what are called ‘pyramid schemes’ made to appear like MLM and wreaking havoc on the reputation of traditional legit MLM’s.
There are some distinctions to look out for. There is a difference between a company that inspires you with enthusiasm and incentives to sell their quality products and share the opportunity with others as opposed to a company that pressures you to primarily recruit others for your downline.
I think the rule should be to sell MLM products you use, like, value and believe in and then recruit when you are satisfied the company has fulfilled their commitments to you.
So what is a pyramid scheme?
A pyramid scheme is a type of fraud. Profits are made by recruiting others to join the program almost exclusively. It is recruiting for a fee or soliciting investments without providing tangible products and services or selling products and services with no independent value.
The company recruits you to join their program for a fee or investment then promises you will earn profits by recruiting others to join for a fee or investment. So Jane recruits Carol, and Carol is required to recruit ten other people, and the ten other people are required to recruit ten more other people each and so on. Only people at the top of the pyramid are able to make money.
How about MLM? In the pretense of posing as MLM, pyramid schemes often sell a product or service to act as a training system to teach you how to earn money online. The product or training system is generally filled with poorly organized information that will prove useless to you to earn money with except how to market for them to recruit people.
Their goal is to get you to recruit for the enrollment fee or investment, so the product is not a focus of value to them. The system they are really selling is recruitment.
Most people involved in pyramid schemes lose money and pyramid schemes eventually collapse because there is nothing real to sustain them. While you are researching ways to earn money online or at home, be aware of some of the following red flags that it could be a pyramid scheme:
- The company description is vague and your questions can only be answered by signing up and paying the fee or investment.
- There is no genuine product or service being sold or it appears inappropriately priced.
- Most or all potential profits to be made are from the sign-up fee or investment from new recruits.
- The company provides repeated assurances that they are completely legal.
- The company promises easy money, fast cash and or passive income by recruiting others and placing advertisements.
- The company has no established revenue from retail sales outside of the program.
- The company requires a buy-in to join which is a fee you pay or investment to start earning.
- The company has a complex or unclear commission structure.
- The company has an emphasis on recruitment and you would earn more by recruiting than by selling a product and or service.
How About MLM? Well, people seem to either be for it or against it depending on their experience. The bottom line is you need to do your research before investing your precious time and money. For more on what to look out for to avoid scams, see my posts Say No to Scamsters and About Online Money Making Opportunities.
Any genuine venture you undertake to earn money will require your time, dedication and follow through. Passive income is a popular selling point, but most people that are able to earn a supposed passive income have worked hard for long periods of time to build their business. Also, they often have staff behind the scenes or outsource work to others to help them maintain their business.
Having your own website will help you promote your MLM interests and you can add affiliate marketing. I highly recommend the training at Wealthy Affiliate. Read my post What About Wealthy Affiliate? to learn more about this excellent affordable program and get started with your free 7-day premium trial.
Thank you for reading How About MLM?. Please leave a comment below and include any helpful advice for others.
References
http://www.sec.gov/investor/alerts/ia_pyramid.htm
http://www.mlmwatch.org/01General/mlmstart.html
http://www.investopedia.com/terms/m/multi-level-marketing.asp
http://www.forbes.com/sites/chicceo/2012/09/27/is-mlm-a-bad-word
http://www.wikihow.com/Distinguish-Between-a-Pyramid-Scheme-and-Multi-Level-Marketing
Hi Gina, Great article! Refreshing to read a blog that promotes affiliate marketing giving the truth about the benefits of MLM and what is causing problems for it. I sell MLM and I am interested in starting my own website and going to check out Wealthy Affiliate. Rick
Hi Rick, There is room for all legitimate Internet business and having a website can be used to promote your MLM and affiliate marketing. Here is my profile link at Wealthy Affiliate. I will follow you there and introduce you to the community and help guide you through the resources. See you on the other side! Gina
Gina,
I agree most MLM companies sell their products just within the distributors. Some have made large amounts of money but most products are going up against the big named stores. Good article.
Gina, this is great information about MLMs, all in one place. I like that you were so complete and covered many aspects of MLM companies and their business model. I have done MLMs over the years and have found that some are definitely better than others, but the business model can definitely work for someone who has the skills that you so accurately defined.
Hi Dan, People interested in MLM really need to do their research and make sure the products and payment structure are sound before getting involved. Also, they need to be sure they are a good fit for it. MLM is not for introverts. Thank you for your input!~Gina
Gina. Good Job. Right off I appreciated your nod to the sometimes overlooked good/successful side of MLM. It is done right often, but gets maligned by the scammers Another thing I liked, and would love to know more, is your social sharing plug in. I love the little plus sign that leads to 18 places to share. Looks very tidy and effective. I used some of your internal links to wander around the site, so Kudos on their use. And your inclusion of Udemy was a welcome sight. I’ve used it, and then my son, and we’re big fans. And of course best of luck to you with the Aweber give away, etc. With that I imagine you’ll do some manner of email marketing.
Anyway, looks good.
Hi Kush, Thanks for reading and taking the time to look around my blog. The social sharing plugin is AddToAny and it is free! I like it a lot. Yes, Udemy is great. I can’t believe how many good free courses they offer and put on sale. I appreciate your kind words! ~Gina
The worst way to earn a living online – especially for newbies. Over the last seven years I’ve reviewed thousands of these opportunities and none of them are worthwhile I’m afraid, People find the MLM business choice an atttractive way to make big cash particularly when earnings are drawn backwards. The truth of the matter is that over 93% of MLM trailsts leave out of pocket (yikes!)
Hi Chris, Thank you for reading and sharing your valuable experience! ~Gina