There is little chance that a Multilevel-Marketing salesperson, or representative, or consultant, or distributor, or whatever they are called, has not approached you to join the team, promising possibilities of wealth, an easy life, dream vacations and more.
Is it legal?
Multilevel marketing (MLM) is legal, and it is an absolutely stellar business model. It is not a scam. Of note, however, is the often repeated (by MLM people) untrue “fact” that the MLM model is taught at Harvard Business School.
MLM focuses on selling products or services. The organizations that can be joined are numerous, and virtually all provide training for the would-be recruit, such that the scripts and come-on’s can almost always be memorized.
MLM businesses sell virtually every product and service imaginable. Vacation homes, vitamins, life insurance, clothing, coffee, legal services, toilet paper and other household products are among the many.
How is money earned?
Money is earned in two basic ways in MLM businesses. First, the individual actually selling the product or service gets a commission on the sale. Then, there are “overrides,” that can be earned if the individual recruits another person to do the selling. Anything the “team” member sells, the individual who recruited that member also gets a piece of the sale.
The term “multilevel” thus works, in a manner of analogy, like a pyramid, where the person at the top gets overrides on the sales of all of those individuals he or she recruited, and then on all of the sales of all of the individuals recruited by that individual’s recruits, and so on, forming an ever-growing stream of revenue from recruits in an ever-growing and widening group of people who were recruited by someone on the team.
Every MLM business also has perks and bonuses if certain levels of sales are reached, such that those with large teams can reap very real, and very significant financial and non-financial prizes.
Is it a scam?
The use of the word pyramid stills many people in considering joining a MLM business.
Most people are leery of MLM and fear being scammed. Accusations that the business is a pyramid “scheme” are almost always raised. The methodology used by legitimate MLM’s to sell themselves, where self-empowerment language is used and videos of yachts, vacation-homes and a life of leisure are shown, lends itself to these suspicions.
Legitimate MLMs are, again, legal. They can work. On the other hand, a pyramid scheme has one purpose, and only one. The goal of a pyramid is to get the new person’s money, and to use that new person to recruit others.
The Federal Trade Commission distinguishes MLMs and pyramid schemes as follows: if a consultant can make an income by selling to the public alone, without having to recruit consultants underneath them, it is a legitimate MLM business.
How can someone tell?
Here are a few ways to determine if the business is a true company, or if the come-on underlies an effort to scam.
Is there a large investment required up front? A ruse might be calling that cash an inventory charge. Legal MLM businesses do not require large start-up investments.
If inventory is to be purchased, will the company buy it back? Legal MLM companies will offer to take back unsold inventory and typically will pay at least 80% of the original purchase price.
What is the marketing plan of the business? If the company does not seem to have any interest in consumer demand for its products or services, it is highly likely a scam and not a legitimate MLM business.
Does the company offer money to sign up new recruits? If so, this is a scam business. Scams are concerned with the number of people signed up, not the products or services being offered.
Beyond determining if a company is legitimate, or a scam, there are truths to becoming involved with a legitimate MLM business. A business report that studied the business models of 350 MLMs, published on the Federal Trade Commission website, concluded that 99% of people who join MLMs lose money.
The executives, owners, officers, and top “salesman” and those with very large teams make a significant amount of money.
The 99% (or if the FTC report is wrong and “only” 80% or 75% lose money, or still, if the FTC is wrong about losing, these folks don’t lose but then don’t make money) are in that bad situation because they cannot recruit others or because those they recruit do not produce. Selling the product or service will produce income, but the bigger sums come from the efforts of the “down-line” recruited. Without proper motivation and constant support, and evidence of success, individuals tend to drop out
Marketing is everything. Even for MLM’s. There are many famous people who are cheerleaders for the MLM model.
Famous people and famous companies.
Robert Kiyosaki, millionaire investor and author of numerous best-selling books, including Rich Dad, Poor Dad, is a staunch supporter of the MLM model. Bessy DeVos, the Secretary of Education, is married to Richard Devos, Jr., the son a Amway co-founder Dick DeVos. Ben Carson, Secretary of Housing and Urban Development and a highly acclaimed neurosurgeon, was a spokesperson for Mannatech, a company that sold vitamins. Donald Trump used to have a MLM business, Trump Network, a seller of vitamins and health products.
Old and established MLM businesses such as Amway, Avon, and Mary Kay have proven to be solid and attracted, and keep attracting, many people who are reasonably content to earn a little bit of “extra” money by doing a little bit of work.
Other MLM businesses such as Herbalife and Plexus (nutrition and weight loss), Young Living and DoTerra (essential oils), Pampered Chef (kitchen tools) also attract many and see a great deal of allegiance, notwithstanding that most earn very little.
The allure of the “big” money effectively yields to the camaraderie. For many, the constant positive accolades and “I believe in you” provide real value. Many MLM distributors describe that they prior to joining, they had no friends and no social life, but now, everyone loves them and wants to help them.
The overwhelming number of the “rank and file” sales folks do not do well at all, and they usually end up quitting after one or two years.
Full disclosure here: I joined PrePaid Legal Services (now Legal Shield) as an associate about ten years ago. As an attorney I had a decided advantage in recruiting others to sell the legal plans, and to sell them myself. I determined that this organization was absolutely top-notch in both the legal services it made available to the consuming public, and to its associates in the form of compensation it provided. I spent about 4-5 hours each week “working” my PPL business, and I achieved the second highest “level.” I earned at my peak a few thousand dollars each month. I stopped “the business” after a few years because of time constraints in my legal practice, but I still am a “member” and I have actually used the services a few times when my family had legal out-of-state issues that I could not address myself. I continue to endorse this company.
MLM is not for everyone. It requires an extraordinary commitment of time and a very strong and positive “never say die” personality. The mantra for virtually all consultants is “next,” meaning that if the person being approached is not interested, don’t get upset or deflated, just go to the next person.
Do not give up your day job.