What is MLM – Is it Legit or a Scam?

MLM is Multi-Level Marketing.  MLM is a marketing and sales system where individuals recruit others to sell (their) Products using a company that provides those products.  Those products are to be sold to individuals by marketing through their unique system.  That system is where levels and levels of people receive a portion of the “commissions” by being part of the Up-line from actual seller to the public.

That is my attempt at definition.  If you have ever sat through someone trying to explain it to you for the first time – it is usually confusing at first.

You will see Multi-Level Marketing, Network Marketing and sometimes pyramid schemes used interchangeably.

(A pyramid scheme is illegal and not MLM or Network Marketing.  However – that type of scam (pyramid schemes) will be explained in another post.)

Here are 3 definitions for MLM from a google search.  The reason I have several is because the concept, just as the success results, are sometimes hard to understand and quantify.

 

From Investopedia:

  What is ‘Multi-Level Marketing'

Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits' sales; the recruits are known as a distributor's “downline.” All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct-sales company that uses multi-level marketing.

 

From Entrepreneur:

MLM Definition: A business model in which a distributor network is needed to build the business. Usually such businesses are also multilevel marketing in nature in that payouts occur at more than one level.

Network marketing is a type of business opportunity that is very popular with people looking for part-time, flexible businesses. Some of the best-known companies in America, including Avon, Mary Kay Cosmetics and Tupperware, fall under the network marketing umbrella.

Network marketing programs feature a low upfront investment–usually only a few hundred dollars for the purchase of a product sample kit–and the opportunity to sell a product line directly to friend, family and other personal contacts. Most network marketing programs also ask participants to recruit other sales representatives. The recruits constitute a rep's “down-line,” and their sales generate income for those above them in the program.

From The Balance – Small Business Information:

Definition:

Multilevel Marketing, or MLM, is a system for selling goods or services through a network of distributors. Multilevel marketing is also referred to as Network Marketing or Direct Sales.

So how does this actually work.

MLM or  Network Marketing is a type of business opportunity.  It is popular with people looking for part-time, flexible businesses. Usually it requires little investment and is presented as available to people with limited business experience.

Some of the best-known MLM companies in America are Avon, Mary Kay Cosmetics Shaklee, Herbalife and Tupperware.  They fall under the heading of MLM’s or the network marketing umbrella.

Network marketing programs feature a low upfront investment–usually only a few hundred dollars for the purchase of a product sample kit–and the opportunity to sell a product line directly to friend, family and other personal contacts. Most network marketing programs also ask participants to recruit other sales representatives. The recruits constitute a rep's “downline,” and their sales generate income for those above them in the program.

Things can get questionable when a network marketing network pays participants primarily for recruiting others instead of selling the company's products or services. A MLM – Network Marketing System in which most of the revenue comes from recruitment rather than products may be considered an illegal pyramid scheme.

Since MLM – Network Marketing Programs are usually exempt from business opportunity regulation and aren't defined as franchises under state and federal franchise laws, you'll need to do your own investigation before investing any money.

I will be reviewing MLM companies in coming articles.  As full disclosure – I have been involved in many MLM businesses over the years – Usually I used the company to get their products.  You will begin to see that that is what a very large percentage of what people do.  WE join as distributors to reduce the price of our products to us.  We maybe share those products with a few associates or friends to further reduce the cost of our personal products.  We do not treat the opportunity as a “real” business with a business plan and marketing plan. We don’t work it or market it as a professional but rather part timer with little persistence.

I have no way of verifying the statistic below -YET – but from The Balance.- an article by Susan Ward – June 14,2016.

What Are the Odds of Making Money with MLM?

 

Poor, according to Jon Taylor, who runs the MLM-theTruth.com website. In his free e-book Multi-Level Marketing Unmasked, when operating expenses and other costs are included, 99.7% of people who join MLMs lose money.

In other words, for every 1,000 people who join an MLM organization, only three will earn more money than they spend.”

Again – as full disclosure – most times when I was in MLM’s -I did make a little money or at least paid for my products.  I did offer them to others around me – most of the time it had to do with health, nutrition and weight loss.  Weight loss, in particular, was my career for many years.  I would periodically use a MLM product in conjunction with my diets for the public or friends.  I used a particular product to complement my existing diet program and products.My conclusion is MLM’s are a legitimate business opportunity – but for only a very few!

The percentage that make money is tiny!   It is usually made on the backs of family and friends.

Many times, the MLM company attempts to create a “unique” product that is only available through them.  This “unique” product is usually at the top end for cost compared to similar products in retail stores or online.The individual customers that use that product will many times attempt to get others to also use the product also – that then reduces the cost to that individual when they use it themselves.

The person then recruited to use the product also can become  a “retail customer” and pay retail prices.  Or, they too can enroll into the company.  That process is called enrolling a distributor (or contractor or consultant or associate).

Whatever the term the MLM company chooses – the enrollee becomes the enrollers downline.  And the enrollee then gets a small “commission” from anything bought or sold by that person.

Future articles will deal with popular companies – up and coming companies – types of downlines (there are 2 basic ones).   What are the chances of making money?  When is a MLM a pyramid and completely a scam?  

  by David Kerchner