Today I want to talk about MLM (a.k.a. Multi Level Marketing or Network Marketing). I don’t know if you’ve heard about this but I will explain what it is about, how it works and the advantages and disadvantages so you know whether MLM is a viable business opportunity for you or not.
Table of Contents
An introduction to multi-level marketing
According to Wikipedia, MLM is “a controversial, pyramid-shaped marketing strategy where profit is theoretically derived from two revenue streams: from direct sales to customers and from commission based on the sales of recruited team members, also known as down line distributors.”
In short terms, MLM is a business model based on networks of independent distributors. An independent distributor is anyone who joins a network marketing or MLM company and sells (or distributes) their products.
Let’s say that you become an independent distributor. That’s what you’ll need to do in order to make money:
- Purchase the products of the company you’ve joined to try or taste them.
- Sell the products you’ve liked so other people can benefit from it.
- Try to get or recruit other people to do the same as you, who will be your referrals.
- Teach your referrals to get more people to do the same as you and them.
This way you’ll build a team or network of people who consume and sell the company’s products.
As an independent distributor, you’ll make money based on:
- The amount of products you’ve purchased or sold (you can sell the products you’ve purchased to third parties).
- The amount of products your referrals (1st level of distributors behind you) have purchased or sold.
- The amount of products the referrals of your referrals (2nd level of distributors behind you) have bought or sold.
Take into account that the level of distributos behind you (downline distributors) can be unlimited. That’s why the bigger your team or network and the more sales you or they make, the more money you’ll earn.
See below how the scheme looks like:
As you can observe, there’s someone at the top and more people at the bottom. The person at the top is the one who gets more benefits and makes more money, since that’s the person who has built the largest team or network. The people who are at the bottom are the ones who make the less money (some don’t make any money), especially if they haven’t recruited anyone.
Why doesn’t MLM have a good reputation?
Network marketing is usually confused with a pyramid scheme, which is illegal.
You can differ a MLM company from a pyramid scheme by asking yourself these questions:
- Does this company have a product to sell (especially a high-quality one)?
- Do I only need to recruit people to make money?
Take into account that there’s no real product in pyramid schemes, so the only way you can make money is by recruiting other people into the scheme and get the to pay the signup fee. This is illegal because you’re not providing real value to other people, you’re just selling them the opportunity.
Once the pyramid has many levels, recruiting will start to slow down and the scheme will finally shut down. This is one of the reasons why so-called MLM companies don’t last for a long time, since a lot of them are pyramid schemes.
Another reason why multi-level marketing gets a bad reputation is that people who join are usually told by their uplines/sponsors to try to get their family and friends into the scheme.
And not only this. You’re also told to make some cold calls (call people you don’t know to recruit them), talk about it every day to everyone you encounter, brag about how great the product is… This can make you look like an annoying salesperson or even a hustler.
Pros & Cons of MLM
I won’t say that everything about MLM is negative or positive becuase it clearly has advantages as well as some disadvantages.
Pros of MLM
- Small investment to get started. Most companies require you to pay a sign up fee of $100 or even less. This sign up fee is to get the starter kit that includes stuff the catalogue of the products and a manual of instructions.
- Opportunity to meet new people and learn new skills. MLM is a kind of business that involves a lot of people so you’ll need to be in constant communication with people like your team members, your uplines, people you don’t even know. You’ll develop communication and leadership skills, among others.
- Opportunity to earn passive income. You can make passive income once you’ve built a team of people who purchase and consume the company’s products, since you’ll receive commissions off of their purchases.
Cons of MLM
- Overpriced products. The products may be more expensive than a similar product you can find in a supermarket. This happens because of the big commissions that need to be paid to the company’s distributors (especially the ones at the top). Without overcharging, there would be no compensation.
- Most MLMs require you to purchase their products. A lot of multi level marketing companies or programs will require you to buy their products to remain part of the company so you’ll spend a vast amount of money on the company’s products unless you sell all the products you buy.
- Most people who join a MLM company fail. A lot of people who join network marketing companies end up quitting because they don’t like recruiting or selling or can’t afford to purchase the overpriced products.
- You can’t make much money if you don’t recruit. Most network marketing companies won’t pay you commissions off every sale you make, they’ll pay you commissions based on the purchases of your downlines. Yes, you can also make money by selling the company’s products, but you can make more money by recruiting people who purchase the products. That’s why getting people into the scheme is essential in MLM.
- You’ll have a hard time if you can’t handle rejection. You’ll find that people you usually contact to recruit will not be willing to join or purchase the products so you’ll need to get used to being rejected.
- You’re not building a real business with MLM. You’re not the creator of the company or the products so you don’t have control over them.
- Your sponsor may not have your best interest at heart. Unfortunately, your upline or sponsor may only care about the money you can make them by purchasing the company’s products. Therefore, if you’re involved in a MLM company and you quit, you may not hear from them anymore.
- The scheme can’t go on forever. When independent distributors can’t recruit any new people, the whole scheme will start to collapse and it will be so hard for them to make money. When people who are at the bottom start quitting and the money stops coming in, then it won’t be long until the MLM company comes to an end. Take into consideration that there’s a finite amount of people in the world.
My closing thoughts
If you want to join a MLM company to become an independent distributor or “IBO” (Independent Business Owner), I recommend that you consider this:
- Make sure that network marketing company has been in business for more than 4 or 5 years, since the more time the company has been in business, the more legitimate it probably is.
- Make sure you like or you need the company’s products so you get always excited about promoting them.
- Get to know about the company’s compesation plan.
I can confidently say that MLM is not for everyone, because most people don’t like to play the whole recruiting game.
I was involved in a MLM company a while ago and ended up quitting because the business model didn’t really convince me. Recruiting wasn’t my thing and my uplines used to pressure me to buy that company’s products to try them, but I didn’t need them all and wasn’t willing to make a collection of products I wouldn’t consume. Another thing is, I could find similar products in the market for a better price.
What I liked the most about MLM was the educational system based on personal growth and assisting networking events. I was just another learning experience for me.
I’m so glad that I found out about affiliate marketing, a profitable and sustainable business model. It’s not based on recruiting and building a downline, it’s based on promoting other people’s products and receiving a commission for each sale you make.
Most things I know about affiliate marketing, I learned them at Wealthy Affiliate. Digital marketing stuff like building a website, keyword research, PPC, how to monetize a blog…
Thanks a lot for reading this article, I hope you found it helpful. If you have any questions or opinions about MLM, affiliate marketing or scams, let me know by leaving a comment below! I’ll love hearing from you 🙂