Like me, I’m sure you’ve seen those bizopp classified ads all over the place defensively proclaiming the advertiser’s opportunity as “NOT MLM!”. If you’re not familiar with MLM (multi-level marketing or network marketing as it’s also known), has your exposure to these ads left you with the impression that there’s something about MLM to be avoided … something that’s intrinsically undesirable? That was certainly the impression I had. Until I finally got around to finding out about it, that is.
Part of the reason for the suspicion with which MLM is regarded is, I’m sure, simply that there’s a lot of confusion about what MLM actually IS. In particular, many people seem to think MLM and pyramid schemes are one and the same thing. Not so. MLM is a perfectly legitimate business model. That’s not to say the industry doesn’t have its share of low-lifes. It does. But, let’s face it, what industry doesn’t?
In this article, we’re going to look at MLM: what it is, how it works, the advantages and disadvantages and who’s most likely to be successful at it. You never know, you could be overlooking your best chance for home business success without even knowing it!
WHAT MLM IS
Quite simply, MLM involves direct selling of products and services via the personal recommendation and endorsement of independent representatives. In return for your personal recommendation and endorsement, as an independent representative, you receive a commission on the sale. It’s different from a normal business in that it doesn’t have a store-front and you generally won’t see the product or service being advertised in the mainstream media.
In addition, as an independent representative you’ll recruit, or “sponsor”, other independent representatives to also direct sell products and services. These sub-representatives form what’s known as your “downline”. As the sponsor of these independent representatives, you receive a commission on THEIR sale, as well as your own.
Similarly, YOUR sponsor, THEIR sponsor and THEIR sponsor (and so on) forms your “upline”. Your upline (up to a certain number of levels) receives a commission on sales made by you and by your downline (down to a certain number of levels).
I have a hard time seeing the difference between this and a multi- tier affiliate program. No-one really thinks twice about affiliate programs as a method for earning commissions. In fact, many of these affiliate programs are the backbone of the businesses of those very advertisers who loudly proclaim “NOT MLM!” in their ads! So what’s going on here? Why does it suddenly get so scary when we stick an MLM label on it?
WHAT IT ISN’T
A multi-level marketing program is NOT a pyramid scheme. Sure, the sponsor receives a proportion of sales generated by their downline, but a legitimate MLM program will involve the sale of products and services with a value proportionate to the amount invested.
A pyramid scheme, on the other hand, is merely the transfer of money from one level of the pyramid to a higher level. There is nothing of value the transferor (the person making the payment) gets in return for their money other than the right to collect money from those lower down the pyramid. Pyramid schemes are illegal for this reason. They are nothing more than an unproductive transfer of wealth from the lower levels of the pyramid to the higher levels. Notoriously, only the highest levels of the pyramid receive significant amounts of money. The pyramid inevitably collapses in on itself before the lower levels can reap their share of the harvest.
You have, I’m sure, received those emails that would have you put $5 cash in an envelope and send it to the name on the top of the list you’re given in the email. You then remove the top name from the list, add yours to the bottom and forward the email to 10 of your nearest and dearest. EVENTUALLY (read “never”), when the email has been distributed widely enough, it will be YOUR name at the top of the list and it will be YOUR mailbox receiving all those $5 bills (yeah, right. What’s Santa Claus bringing you this year, boys and girls?).
This is a classic pyramid scheme and it IS illegal, no matter what the email says. Participate in these schemes at your own risk … don’t say you haven’t been warned!
Beware also of pyramid schemes thinly disguised as MLM programs. These are schemes where there IS some product or service sold, however, it is of a grossly disproportionately lower value than the amount of money that must be paid to participate. These are programs where the product or service is thrown in purely in an attempt to keep the program just this side of legal. Don’t participate in these sorts of programs. Most, if not all, are also illegal.
Now that we’re clear on what MLM is and isn’t, let’s turn to the advantages and disadvantages of MLM as a business model to allow you to decide for yourself whether it may be for you.
ADVANTAGES OF MLM AS A BUSINESS MODEL
Low Barriers to Entry
MLM is a very egalitarian industry to get into. It doesn’t have any pretentious entry requirements, you don’t need a college degree, nor do you need any particular experience.
Financially, MLM generally has relatively low set-up costs compared to other small business/franchise start-ups. Actual costs will vary by program. Some may require a substantial monthly investment in the products or services that form the substance of the business so be sure you understand exactly what will be required of you before you join.
Fortunately, there are also plenty of programs out there that only require a modest financial investment to get started. If you are new to MLM, start with one of these. My own network marketing company, FreeLife, is extremely low-cost to start – only $29. To learn more about FreeLife and my organization, click here.
MLM Company Manufactures and Drop-Ships the Products
You are selling an already manufactured product and the company will drop-ship the product to your customer. This means you don’t need to worry about anything but making the sale.
Flexible Hours
You can work the hours you choose. If you have a full-time job, you can work your MLM business in the evenings and on weekends. If you’re a stay-at-home mom, you can run it when the kids are at school. You can still take vacations and if your child gets sick you can take a day off.
Work from Home
You don’t need a corporate office for this sort of business. You can run it right out of your home.
Can be run Part-Time
Because of the leveraged and residual income nature of MLM, good money can be made running an MLM business properly only part-time.
Leveraged Income
“Leveraged” simply means you receive a continuing benefit from a single initial effort.
Because you’re earning commissions on sales generated by your downline as well as your own sales, you will continue to make an income as long as your downline works hard. Your job as sponsor is to develop your self-motivated downline so this actually happens. Note, it is NOT your job to actually motivate your downline – that’s their job. You want to work with self-motivated people, not those you have to drag across the finish line (or the starting line for that matter!).
Pre-Existing Business and Marketing Plans
You don’t need to come up with your own business or marketing plans. These are taken care of by the company.
Pre-Existing System
Similarly, you don’t need to reinvent the wheel when it comes to systems for recruiting, developing and training your downline. These are pre-established by the MLM company you are representing. This means you can hit the ground running and start making money quickly.
Personal Growth and Development
The nature of the form of selling you will be doing in this business puts you in contact with many and varied individuals. Over time, your leadership and developmental skills will become ever more finely honed. You will derive a great deal of personal satisfaction from helping others make a success of their businesses.
DISADVANTAGES OF MLM AS A BUSINESS MODEL
Potential to Alienate “Warm Market”
MLM programs generally have you start by marketing to your so-called “warm market”. Your warm market is basically everyone you know: friends, family, colleagues, advisers, teachers, doctor, lawyer, neighbors, acquaintances …
Your sponsor will probably ask you to make a list of 200 or so of these people and have you contact each and every one of them about your MLM program.
Reactions to such an approach will vary. Close friends and family will probably humor you even if they have no intention whatsoever of joining your program. Others who don’t know you well may be dismissive or even downright hostile to your approaches. Some MLMers have reported people crossing the street to avoid them when they see them coming! So you need a thick hide in this business.
And think also about what happens if someone you care about DOES proceed with your program and loses money. Close relationships have been destroyed as a result.
Because this aspect of network marketing puts so many people off, the AHBBO-FreeLife network marketing team specializes in Internet-driven network marketing. You simply don’t have to deal with your “warm market” at all. You establish and run your business exclusively online instead.
Takes Effort, Energy and Motivation
Not only must you actively recruit your own direct downline, you must stay on top of them to ensure that they are actively recruiting and supporting THEIR downline. Remember, this is the way you make money in this industry. It’s all about leveraged income.
So understand going in that this is a business that will require real effort on your part. And sustained effort at that. But what in life that’s worthwhile doesn’t, right?
Also, plan to have to motivate yourself. Ideally, you should be being “worked” by your upline to keep you on track but motivating yourself is YOUR job. Don’t expect someone to do it for you. There are too many other motivated people out there for your sponsor to be working with.
Financial Commitment
More likely than not, you will have to commit to purchasing a certain volume of product each month to remain eligible to participate in the program. Be sure you understand your monthly financial commitment going in. And, while you’re at it, make sure that what you’ll be buying is a quality product that you have a genuine interest in purchasing. If you’re just going to stash it away in a cupboard somewhere, look around until you find a product that you actually want and will use.
FreeLife only requires a commitment of 35 volume points (roughly equivalent to $50 worth of product) each month. And these are products you will actually use. The product quality (health and nutrition, organic skin care and natural household cleaning products) is outstanding and, most likely, you will simply “transfer buy” the products anyway. In other words, you’re probably already using most if not all of these types of products anyway. It’s simply a matter of buying from your own FreeLife business than the supermarket. You can literally be in business with no new money!
WHO IS BEST SUITED TO MLM?
It should be obvious from what has been said above that in order to be successful in MLM, you have to be someone who’s a self-starter and is able to lead others. If, on the other hand, you’re someone who needs someone else to poke you into action when it comes to work or business, MLM is probably not for you.
You need to be an active recruiter and, once you have a downline, you need to be in touch with them constantly to provide support, assistance, guidance … leadership, in other words.
Of course, if you’re going to take on this role, you will need to be comfortable dealing with people. This doesn’t mean face to face, of course. If you’re running your business exclusively on the Internet, you will probably never meet most of those you work with on a day to day basis. But you must be able to communicate effectively. Common sense suggests that the more outgoing and sociable you are, the more you are going to enjoy this sort of role and the better you will be at it as a result. If you’re more of a recluse than a social butterfly, it’s unlikely you’re going to be able to walk the talk and get out there and do what has to be done to keep your downline on track and productive.
Finally, MLM is a very personal way of selling. You must exercise your own powers of persuasion and influence to encourage others to come on board with you. It is imperative, therefore, that you are 100% behind the program you are promoting. Do NOT lend your name or endorsement to something that you are not genuinely committed to. Although you may fool your downline for a while, you won’t be able to keep it up for long enough to enjoy long-term financial success with your program.
But even more importantly, don’t compromise your own self- respect by promoting something you just don’t believe in. Not only will you be lying to your downline and prospective downline, you will also be lying to yourself. In the long-run, no amount of money can buy back your self-respect once you’ve sold it down the river.
As you can probably appreciate by now, the right MLM program can be an ideal type of business to run online, what with the fabulous advances in communication offered by email and the web. Unfortunately, however, this is a double-edged sword. The fact MLM is an ideal internet business is the very thing that attracts the unscrupulous and tarnishes the reputation of MLM in general. So be on your guard. BUT don’t allow the actions of a few (or even many) to rob you of the chance to participate in something that may ultimately lead you to legitimate home business success.
2000 Elena Fawkner
Elena Fawkner is editor of A Home-Based Business Online … practical business ideas, opportunities and solutions for the work-from-home entrepreneur. http://www.ahbbo.com/
