Has a friend or relative told you about an MLM business opportunity? Are they trying to recruit you into their business or sell you products?
In this article, I discuss MLM, otherwise known as Multi-level marketing, network marketing, or direct sales and reveal what you must know before you get involved.
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Is MLM a Scam?
MLM works by selling a dream of financial independence. The MLM website may not directly promise you financial independence, but that is what they are selling. The sales pitch typically states you can be in business for yourself and make a lot of money.
If an MLM didn’t sell the dream of making a lot of money and becoming financially independent nobody would join. And, without fresh blood, an MLM will die a quick death.
The truth is, there is no opportunity with MLM. Your chances of making money are better in Las Vegas. In-depth analysis of the industry show that most people lose money when they try MLM. (Source: FTC)
Read Why Affiliate Marketing is Better Than MLM
If You Want to Be Financially Independent.
Don’t bother with MLM if you want to be financially independent. MLM is a very old business model that never worked anyway (At least not for the little guy).
The future of marketing is online. Thanks to the internet, it’s easier now than ever to make money from home. And, there are reliable strategies for achieving financial independence in 3 to 5 years, but MLM is NOT one of them.
In a moment, I’ll explain what I mean. But first, I want to prove to you why MLM is a bad idea.
The MLM Business Model.
On the surface, an MLM appears to be a clever way for people to make money by selling products directly to their friends and family. The more ambitious may also choose to build a sales force and earn a percentage of each sale that is made by their organization.
Looking more closely at the MLM business model, you’ll discover that the products are expensive, usually extremely expensive compared to products sold through traditional channels.
An MLM company will justify the high cost of their products by explaining that their products have special qualities. However, if you look closely, the only thing special about the products is the price.
MLM is a Product-Based Pyramid.
Peel away the excitement, the slick website and claims of magical products, and you’ll see that an MLM is a product-based pyramid scheme. To see what I mean, first look at a pure pyramid scheme.
How a Pure Pyramid Scheme Works.
A pure pyramid scheme does not sell products. Instead, a pure pyramid scheme sells only a business opportunity. When you follow the money, the mechanics of a pure pyramid scheme become clear. The same mechanics drive an MLM too.
Here’s a generic example of how a pure pyramid scheme works; you pay the person who recruited you into the pyramid $100.
In exchange for giving the person who recruited you a $100, you are licensed to recruit other people into the organization and charge them $100.
When you recruit someone, you get to keep a portion of the $100 as a “commission” and pass the rest up to your sponsor and upline. Everyone in the organization is feeding money to the person at the top.
If you want to keep making money, you must “qualify” to earn commissions each month by paying another $100 to your upline. If you don’t pay $100 each month, you are not qualified to earn “commissions” and can’t make any money.
Because pure pyramid schemes do not have a product, there is very little expense. The money that comes into the organization is entirely profit.
Most countries outlaw pure pyramid schemes because they do not create anything of value that contributes to the economy and because they ruin people’s lives.
For simplicity, in the example above, I used a $100 to show the flow of money from the bottom of a pyramid scheme to the top. In truth, many pyramid schemes charge thousands and encourage members to put it on a credit card.
A Product-Based Pyramid Scheme.
A pyramid scheme is a massive funnel channeling cash to a handful of people at the top. To say they are insanely profitable would be an understatement.
Creating an organization that vacuums money out of the pockets of thousands of people can be extremely lucrative, if you can stay out of prison.
How can you build and manage, and most importantly profit from a pyramid scheme and avoid the law? You add a product line and call your scheme an MLM.
Network marketing, Multi-level marketing, MLM, call it what you will, but if you follow the money, you’ll see it’s just a product-based pyramid scheme.
How a Product-Based Pyramid Scheme Works.
An MLM will use every psychological trick in the book to keep you paying them money each month.
Follow the Money.
It starts with a very expensive product.
Remember in the above example of a pure pyramid scheme money is funneled from the bottom of the organization to the top.
With a product-based pyramid scheme, instead of just passing money up from one level to the next, which is illegal, they sell a cheap product for a lot of money.
What’s the difference between handing your upline $100 cash or paying them $100 for a product that cost the company $1? Not much.
Would You Buy the Product IF…
When looking at an MLM opportunity, ask yourself if you would pay the price they demand for their products if you knew you’d never make any money with their business opportunity.
People join an MLM because they believe they will make a lot of money. Why else would someone pay $100 for a product they can get at WalMart for $5?
The MLM Business Opportunity.
A typical MLM will sell you the business kit for a flat one-time fee. The price varies, but it is usually set low enough to make the opportunity appear affordable.
When you buy the business kit, you might get a cloned website and some business materials, including what appears to be a very lucrative compensation plan. The one thing you won’t get is products.
While the business kit might get you started but, it usually isn’t enough for you to earn commissions. If you want to make money in MLM, you must first “qualify” to earn commissions by buying products.
In the beginning, you’ll be encouraged to buy a product starter pack. These are an assortment of the company’s products packaged together. The cost can range from a few hundred dollars to thousands.
Remember, when you purchase MLM products, you are paying many times more than what the product is worth.
You Must Qualify to Earn Commissions.
The expensive starter packs are the MLM’s method of getting as much money out of you as possible before you quit. And, you will eventually quit. Either you will become discouraged, or you will run out of money to pay for products and can no longer “qualify” for commissions.
Each month you must qualify again by buying more products. Most MLMs force members to commit to an auto-ship agreement, where they automatically buy product each month. If you don’t agree to the auto-ship, you will not be “qualified” to earn commissions.
The auto-ship requirement is the MLM’s strategy for keeping the money flowing from the bottom of the organization to the top, just like a pyramid scheme.
What You Must Know About MLM.
According to the Federal Trade Commission, 99% of people who try an MLM business opportunity will lose money. In other words, you have a 1% chance of making money with MLM.
It’s safe to assume the chance of becoming financially independent with MLM is near zero. (Source: Jon M. Taylor, MBA, Ph.D., Consumer Awareness Institute)
How the Compensation Plan Gets You.
The compensation plan for an MLM is a masterpiece of psychological manipulation.
The purpose of an MLM Compensation Plan is to sell you the dream of financial independence. It creates the appearance that you can make big money with the opportunity.
The compensation plan is designed to make you feel greedy to join the MLM. Greed is an emotion. When you are emotional, you cannot possibly make a rational decision. The creators of MLM don’t want you to use logic, if you are logical, you will see through their scheme.
The compensation plan puts you in an emotional state. And, for good measure, the plan is complex, so your logical mind cannot engage with it. This one-two punch forces you to make an emotional decision when you should be making a rational decision.
After you join an MLM, the purpose of the compensation plan is to keep you bound to the company and buying products each month.
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The Inside Joke.
The inside joke with MLM companies is that you aren’t a business partner with them. You’re a customer whose belief in the dream of financial independence keeps you locked into their scheme.
The Other Thing You Must Know…
An MLM company teaches that the big money is in recruiting a large downline. Recruiting is difficult. For most people, it’s impossible.
The MLM industry has a huge turnover. People quit all the time. Building a downline is like filling a bucket with a hole the size of your fist. People quit faster than you can recruit them.
If you want to make money in MLM, you must become a recruiting machine. And, you can’t get discouraged when a third of your downline quits each month, because people quit in mass.
Can you go into someone’s home, sit among their family, gain their trust, look them in the eye and sell them the dream of becoming financially independent with your MLM business opportunity while at the same time, you know they have less than 1% chance of making any money at all?
Can you do that every day, year after year, until you succeed? If you can’t do that, you have no business in MLM, because that is what it takes.
A Better Option for You…
Aspiring to be financially independence is a worthy goal and, a realistic one, if you find the right vehicle to get you there.
Earlier I mentioned how it’s possible to achieve financial independence in 3 to 5 years. That is assuming you get the proper training and support, and you do the work.
Your Greatest Opportunity.
By any measure, the greatest opportunity most people will ever have is the internet. For the first time in history, an individual has access to the global marketplace and unlimited earning potential.
Technology makes it possible to build a six and seven figure online business with minimum overhead and no employees. For the price of an average dinner for two each month, anyone can launch and manage a profitable internet business.
If you want to stake your claim to the global marketplace, you must first learn how to sell properly. It’s not difficult.
How to Sell to the World.
MLM teaches the worse way to sell. Most MLM members are left to figure out how to sell the products on their own.
They usually end up trying to talk a family member into buying something they don’t want and don’t need for more money than it’s worth.
The easy way to sell is to help people. It starts with finding a group of people with a desire or a problem. Then find a product that fulfills their desire or solves their problem. When you match a product to people’s needs, they gratefully buy your product.
If you combine the philosophy of selling by helping with the global reach of the internet, you can help a lot of people and make a lot of sales. Call it affiliate marketing.
The Future of Marketing.
MLM is a ridiculous business model that dates back 80 years to the 1940s.
It’s predatory and exploits everyone in the lower levels. For years, it might have seemed like the only options some people had for improving their lives. That was never true, and it is especially not true in the Digital Age.
Thanks to the internet. Products can go straight from the supplier to the customer. And, if you help to introduce customers to the products, you can make a lot of money without leaving home. It’s called affiliate marketing.
Click to DISCOVER a Proven Path to Financial Independence!
The Place to Start.
Every day, my friends and I teach people from every walk of life how to profit from affiliate marketing. Affiliate marketing is surprisingly affordable and easy to start.
Learning how to make money with affiliate marketing begins with the FREE starter portion of the Online Entrepreneur Certification Course.
The FREE Starter Course shows you the fundamentals of affiliate marketing and a proven reliable strategy for building a long-term income. You will also meet an online community of affiliate marketers who are devoted to helping succeed.
To learn more about the FREE starter level of the Online Entrepreneur Certification Course, Go Here.
Related Articles:
Why Affiliate Marketing is Better than MLM
How to Evaluate an MLM Company
If you found this article helpful or have experience with MLM, please leave a comment below.
Hey Gary, I do agree most MLM’s make it seem as if your going live the “DREAM” to financial freedom. Additionally, they have one of the best psychological mechanics.
I use to be apart of a multi-level marketing company, called ACN. The way ACN presented the opportunity, I’ll admit it really did pump me up, and I actually bought the service.
I do want to say though, if I knew about affiliate marketing and seo traffic marketing 6 years ago; I would have created a blog and promoted ACN’s services.
Consequently, the way they told us to promote their products was so old and archaic, now that I look back I just shake my head haha.
Long story short, there was a lot of people on my team that ended up quieting just as I. I really don’t understand the whole tell your family and recruit, personally it wasn’t for me.
I will say though, there was definitely some people making money, I met Aaron Burt founder of Coalition International, a company he built within ACN.
I am still mind-boggled by the way they tell us to promote the products, its very old-school.
There is soooo much I can say, but I’ll end it here!
thanks for sharing this!
Hi Gary,
Thank you for your review on MLM business.
Many years ago, I was convinced to join an MLM company, hoping to make money and work for myself. I have wasted lots of my time and money. I ended up losing money and left with products that I never used.
I am interested to learn affiliate marketing. If I can make money by helping people that would be great 🙂
Hi Gary – I found your article to be very well written and very informative. It was interesting to hear your thoughts and perspective on the MLM business.
I was not aware of the exact concept of MLM, and found this article to be quite informative. I am getting started in the affiliate marketing business, so I found your article relevant and interesting.
Nice job,
Michele
Hi Gary,
This is an interesting read. I have never seen MLM explained in such detail.
To be honest I have seen both Affiliate Marketing and MLM work for some people. I don’t know what the percentage is, but it appears to work best for someone who has a large circle of social influence to keep new people coming into the business.
Anyway you have certainly provided food for thought. Thanks for the post.
V. Pearl
Fisrst mlm and a pyramid scheme are not the same. A main difference is that mlm has a product a pyramid does not.
“You have only 1% chance of success” my friend, not only with mlm but with everything, sports, school, university, any kind of competition, love, personal goals, most of the people fail on everything you can think of, but success is not luck. If you are not successful is your fault!
You can change that, but I consider that the bestbiggest way to do so is with Affiliate marketing andis it is 1000 times better than mlm for uncountable reasons!
Hi Gary, while I do not think that every potential business venture out there set up as a product based MLM is a scam, there certainly are a lot that are. That said, I think your post does an amazing job of giving people a way to evaluate whether the opportunity is a scam or whether it is legitimate.
For example, there is currently someone that is heavily marketing an multi-level marketing program that purports to sell hemp products. To sell these products, you have to purchase a certain dollar amount of the lotions or oils or dog supplements. These items cost more than they would if a similar quality was purchased on Amazon or from other sources. The vast majority of the focus on this program is getting people to sign up under you rather than the products themselves. I looked into it and I probably get three or four emails each day talking about how many people are theoretically under me in my down line if I will complete the required purchase by this upcoming Thursday.
On the other hand, one of the best known programs set up as an MLM is Avon – the beauty products. Although Avon certainly encourages representatives to get people to sign up under them, the primary focus is on selling Avon products. A person can only go up so high in the chain without ensuring the people under them are trained and successfully selling products also. Avon products, especially their lipsticks, fragrances and jewelry have stood the test of time. The prices are competitive with what you would pay for similar products elsewhere. If I recall correctly, Avon is one of the founding members of the Multi Level Marketing Organization. Anyway…there is a huge difference between the way a legitimate product based multilevel marketing business is operated and the types that are a total waste of money.
As result, I find myself agreeing with you that there is a lot of opportunity to earn a full time source of income in affiliate marketing – if people are willing to invest the time and effort it takes. Affiliate marketing is no where remotely close to a get quick rich scheme for inexperienced people.
Again, people would be very wise to apply the principles you stated above to test whether the MLM opportunity they are considering is a scam or not. I suspect most are scams….
Great post.
I’ve heard a lot about different types of multi level marketing opportunities lately and have been researching to see if they are legitimate and really glad i came across this post.
I never thought about affiliate marketing much before and it does seem like a great way to go. Your certification course looks worthwhile and I’m going to check it out right away.
Thank you so much!
Hi, Barry!
MLM really is a waste of time, energy and money. I struggled with it back in the day, but now there is thorough research to show the odds of winning with MLM are near zero. Affiliate marketing is a far better choice if you get the right training and support. And, you’ll get that in spades with the course. Naturally, you must put in the effort too.
The thing about affiliate marketing is it requires patience and commitment, but doesn’t any legitimate business? Most people come to affiliate marketing with a lottery mentality, thinking if they make a lot of money quickly, they’ll keep doing it. It doesn’t work that way. Affiliate marketing is a skill set and the better you get at it, the more money you can make.
Thanks for stopping by,
Gary