What To Know About Multi-Level Marketing

You may know a family member or friend who sells multi-level marketing (MLM) products.? However, that MLM participant is not reaching the top-level success they desire. Why is that? It all comes down to how the business works: A passion for the brand and a dogged love of sales. Discover more about MLMs and if they could be right or wrong for you.???

By Helen Harris

You’ve heard the names:?

Mary Kay. LulaRoe. Arbonne. Avon. Rodan + Fields. Amway. Herbalife. Natura. Tupperware.?

The list could go on.?

You have probably received invites for a “quick conversation” or even attended a makeup, jewelry or skincare party at an acquaintance’s house.

What is the name of this game? Multi-level marketing, or MLM (also known as network marketing). There have been quite a few documentaries and headlines surrounding MLMs and most of them paint a negative picture.?

But what about those top-selling individuals? What about your cousin who is making a living and supporting her family while working from home??

First, you must fully understand how multi-level marketing works to ascertain why some people achieve this desired “top-level,” “financial-freedom” success within their MLMs — and whether or not this business and job description is right for you.??

Understanding Multi-Level Marketing?

MLM is a method of selling products directly to consumers using independent sales representatives, as Forbes explains.?

“In essence, in an MLM company, the workforce is comprised of primarily non-salaried representatives, who are encouraged to sell services [and] products and often also recruit more representatives,” reported Carly Hallman in TitleMax.

While you may immediately think of the word “pyramid scheme” when you hear MLM, this is not the case, as Katherine Danesi points out that pyramid schemes have been outlawed.?

She references an explanation between the two structures in a recent Forbes article, which explains that the difference comes down to the sales versus recruitment focus in the compensation plan.

The Federal Trade Commission (FTC) states that “if an MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.”?

More specifically, for an MLM to be compliant, members must sell at least 70% of their products to non-distributors.

However, pyramid schemes are based on members constantly signing on new dues-paying members to join the business — in addition to buying products that they may not be able to sell.

But even with this knowledge, it’s hard to ignore that MLMs still aren’t regulated very closely and many companies aren’t able to carefully watch and keep track of each of its distributors, making it easier for fraud to occur.?

“It’s almost impossible to track if a distributor has stashed unsold products in their garage or closet,” said Christine Alemany, CEO of TBGA, in Forbes. “For the most part, MLMs take their distributors at their word.”

But if you are unsure or feel uneasy about a certain MLM, The Balance Small Business indicates one huge indicator that you’re dealing with a pyramid scheme is if there's a lot of pressure to act quickly and buy more product than you can resell.

Cory Rusin, a researcher who works closely with former multi-level marketing distributors after they leave direct sales, told Forbes even if a distributor does clear 70% of their inventory in a given month, incentives and subsequent financial freedom offered by many MLMs cannot be achieved through direct sales alone.

In addition to the above insight, consider the following data from research conducted by AARP:?

• Most participants join MLMs in hopes of earning supplemental income while working part-time, yet only one-quarter of participants make a profit — and of those, 53% make less than $5,000.
• 60% of MLM participants are women, and 76% have no experience in commission-based sales.
• 65% of MLM participants reported that knowing what they know now, they would not join the same MLM company again.
• The most common reasons for leaving include the following: 39% found it awkward to pitch to family and friends, 36% were not making as much money as expected and 35% did not like having to sell all the time.
• Of the majority (74%) of participants, 47% cited that they lost money and 27% broke even.?

With all this information in mind, you may be wondering: So are MLMs good or bad??

The Skills Needed To Successfully Operate an MLM?

This isn’t a clear-cut answer; it’s not one-size-fits-all, and one particular business will not be for everyone. But one thing is for certain: You have to like sales.

Just like public corporations, there are both unflattering aspects and positive aspects to consider with MLMs. Just because you are given a playbook and products to sell, that doesn’t guarantee success.?

If you desire to reach gold-level success within your MLM, you will need to make sure that it is your full-time commitment (not a “side hustle”), you have done your research and due diligence, and that ultimately, you are willing to be an excellent salesperson to hit your targets. And in addition to a great salesperson attitude, you also must realize that to attain your high-level goals, as Rusin indicated, you’ll likely need to get comfortable recruiting members.?

Elizabeth RedCloud, certified digital marketer and CEO of ClickIt Social Media, Inc., adds to this perspective, advising any potential MLM participant to really think about the aspect of paying someone else to sell products.???

“The downside is that it's [usually] not about the products at all,” said RedCloud. “It's about whether or not you're bringing more people into the business. With most MLM businesses, they tell you to promote the products, but it's actually promoting the business to bring more people in.”

When an MLM Could Be Right for You

“For women leaving their jobs and wanting to find their own way to generate income, MLMs make this easy to do,” said Danesi. “A lot of the products I see women selling are health and wellness related. There has been so much focus on these areas in terms of product development in general, so it's attractive to women who want to feel good about what they are selling. I've had more than one conversation where the women are truly passionate about their offering(s).”

So maybe you are attracted to a certain MLM brand, have done your research and are now ready to take the next step.?

RedCloud says your first step should be to talk to anyone successful in an MLM for some time, such as two or three years, and ask them what has made them successful and any challenges they faced.

She also cautions potential participants to remember that joining an MLM is not starting “your own business” but rather joining a brand, so you need to feel 100% comfortable with and knowledgeable about that brand.?

“When you start a business, sustainability is one of the key factors to whether or not it's going to be successful,” said RedCloud. “But remember, this isn’t your business, so you need to do your research on the brand and make sure it’s something you feel comfortable getting involved with.

Look at things like how many times the brand may have changed names, any legal issues, the compensation structure and any payout issues and really get the full picture — not just what the brand is promoting.”?

And if you feel at peace with all of the above, RedCloud then recommends that you realize that an MLM is essentially a sales job and to ask yourself if you have the time to learn how to market the products and work a full-time job to be successful within that brand. If the answer is yes, this could be a great opportunity for you.?

Now, it’s time to understand how network marketing works.?

According to Epixel, network marketing is considered to be one of the best ways to market and popularize a product. However, it’s up to the MLM participant to take the steps to learn how to learn their market, identify customers, track their success and set goals.?

Epixel offers some suggestions for network marketing success:?

• Do the research and understand the field you are in before trying to make sales.?
• Understand your target market.?
• Understand your compensation plan.?
• Make sure to stick to a daily routine and to set and track your goals.?
• Explore all avenues of marketing — mainly email marketing and social media platforms.?

These steps have worked for many who have tapped into their sales and marketing skills and subsequently experienced life-changing success within the MLM structure. Additionally, Epixel reveals that the U.S. has the most MLM earners in the world, with 43 individuals or partners on the top 100 list.?

Other Considerations with MLMs?

Maybe you’re looking for a change of pace, more flexibility, more income or even a product you’re truly passionate about.?

The key takeaway here is not to run, or get hooked on, the first MLM opportunity you see and always do adequate research.?

The Balance Small Business offers some tips if you’re researching a particular MLM:?

• Review the company's sales literature, business plan, and/or marketing plan.
• Network with other people who have experience with that MLM and the products. Do those products sell? What are the reviews online? Determine whether the products are actually being sold and if they are of high quality.
• Consult Better Business Bureau to see if there have been any complaints about the company.
• Listen carefully at the MLM recruitment meeting: A red flag is if you hear inflated claims for the amazing amounts of money you're going to make.

Ultimately, remember that there are several avenues, business opportunities and companies to explore before you write that check and have a bag of products to sell.?

Rusin advises potential candidates to consider why they are attracted to a certain MLM and explore if they can fulfill that “why” somewhere else.?

For instance, maybe you want to work from home or get involved in the beauty industry. There are other ways to quench that desire you have.?

“Start your own business by exploring what your strengths are and how you can provide a needed service to others,” Rusin said. “There are inexpensive ways to get started and you’ll have created a much more sustainable and ethical avenue of income.”

Top Takeaways?

What To Know About Multi-Level Marketing?

• Multi-level marketing, or MLM (also known as network marketing), is a method of selling products directly to consumers using independent sales representatives.
• An MLM is not a pyramid scheme: Pyramid schemes have been outlawed, but you should still do your research to make sure you are with a credible MLM.?
• Joining an MLM is not starting “your own business” but rather joining a brand, so you need to feel 100% comfortable with and knowledgeable about that brand.?
• You need to be comfortable with sales and recruiting members to be “top-level” successful within your MLM.?
• Identify your “why”: There are several avenues, business opportunities and perhaps positions within other companies to explore before joining an MLM.?