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 to 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 can make money by selling the company’s products and services without signing up new members.
Though it can be traced back to the 1930s, 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, electronics, and many other products. By the early 1980s, 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 built and continue to have thriving businesses using MLM as a strategy.
I visit many Facebook groups that advertise home business opportunities where MLM promotions are prominent. They are clearly as popular as ever, but most are fad MLM’s and by that I mean they will not last due to poor products and questionable business practices.
99 PERCENT OF THOSE WHO PARTICIPATE IN MULTILEVEL MARKETING LOSE MONEY
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 might already sell 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 is 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 its 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.
Jane recruits Carol, 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.
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 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.
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.
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