It's best to be aware of the pros and cons before you commit time or money to a multi-level marketing business.
When Nadine heard about a direct sales company — a multi-level marketing company, also known as an MLM — she jumped at the opportunity to get on board. The product was financial services. But after a few months, she had nothing to show for her efforts. “People are on fire and I’m feeling like a complete failure,” she said.
She’s not alone. Experiences of MLM failure are common. Actually, according to a Federal Trade Commission report, the failure rate for MLMs is about 99 percent!
But it’s also undeniable that some succeed. Nicole’s experience was that her MLM gave her residual income — also called passive income — although it took a hard, sustained push to get to that point: “The average person goes to work and gets paid, goes to work and gets paid, goes to work and gets paid. In direct sales, we go to work and we do NOT get paid. We go to work and we do NOT get paid. We go to work and we do NOT get paid.”
Sounds rough. Sounds like failure.
But then things change: “We go to work and we get paid, and we get paid, and we get paid, and we get paid.”
In other words, a lot of hard work up front results in an abundant harvest later.
It sounds appealing, right? Who doesn’t want financial freedom? Who wouldn’t love to have a job that lets you spend time with your family and have complete control over your own success?
So you might be wondering: What’s an MLM and should I join one? Am I the kind of person who would succeed at this, or will I be like the other 99 percent who it doesn’t work out for? And what does it really take?
Let’s unpack that question by starting at the top and working our way down … pyramid style.
What is an MLM?
Multi-level marketing is a direct sales business model with two features: first, you sell a product or service to others; and second, you recruit family, friends, and acquaintances to be your sales team. They, in turn, sell and recruit. So, whenever they make a sale — and recruit others who make sales — a small cut of the money flows upward, straight into your bank account. Over time, if the network under you is expanding and flourishing, those small cuts become a steady stream of income. And just like that, you’re off the hamster wheel of trading time for money.
An MLM has a pyramid structure but is not the same as a pyramid scheme. The difference is that a pyramid scheme doesn’t actually offer any product or service; it’s just about recruiting people who will give money, and who will in turn recruit others.
In theory, the two are distinct. But there is a range of MLM companies, and some get most of their income from signing up sales people, not from selling the product. Unfortunately, it’s up to you to make sure you can tell them apart.
4 tough questions to ask yourself before you start
So let’s break down the question of “should you do an MLM” by following a flowchart of questions you should ask yourself before you sign up. Answer these questions before you start writing out that list of everyone you know.
1. Is this MLM legitimate?
If you’re not deterred by the casualty rate and you still want to give it a try, the first and most critical question you have to ask is: am I looking at a legitimate business or a scam?
Your first resource is the Better Business Bureau, particularly the reviews. What kinds of things do the current or former associates complain about? How well does the company respond to these complaints? Do they seem to be solving the problems?
And of course, Google the heck out of it. Read everything you can find: the good, the bad, and the ugly. Bear in mind that the company website is going to have mostly glowing reviews, since they don’t want you reading the negative ones … so cast your net further afield.
You’ll find lots of angry, disappointed people venting in online forums (shocking, I know). Read and learn. Do their complaints seem legitimate? Do you spot common patterns in the types of problems people had with that MLM?
Find out who runs the company, what degree of transparency they have, how they treat their reps and customers. Also watch out for red flags that suggest that you are the cash cow, not the product. Make sure you know the following:
- Do they even have a real product or service? If not, you’re dealing with a pyramid scheme. Run away!
- Do they make you buy a ton of stock as part of your onboarding commitment? That should set off some alarms. You shouldn’t be going into debt right off the bat.
- Is there a cult-like veneration of the founder? That should be an instant turn-off.
- Do they want you to pay in cash, or via money order or wire transfer to get started? Sounds fishy.
- Are they transparent about their product and their business model or do they hide behind vague answers?
- Do they make you go through an expensive training program, and then tell you that you have to go through yet another, and another, in order to be fully qualified? If so, they’re milking you.
- Does the product hype seem way overboard to you? As in, ridiculous and impossible? Don’t excuse it as enthusiasm if your gut instinct is telling you it’s borderline fraudulent. If there were a perfect weight loss product that could take 20 pounds off in two weeks and also enhance your hair and skin, the world would know about it by now. Trust me.
- Are they rushing you to make a commitment right away? Do you feel pressured to get on board before this amazing opportunity escapes you? A legitimate company won’t resort to high-pressure sales tactics.
In short, something about the company seems off, go no further.
2. Do you have the right networks to sell to?
I myself tried an MLM for a few months. But I had a few self-imposed limitations: I didn’t want to sell to my friends (for fear of seeming to exploit them for personal monetary gain) or acquaintances (didn’t want to scare them away by becoming “that person”), or family (I was absolutely sure they would make fun of me for being gullible). The end result was that I was planning to approach complete strangers with my sales pitch.
But … MLMs don’t work that way. You have to start with your networks of friends and family members, unless you’re a gifted salesperson who can sell to a rock, or turn a stranger at a bus stop into your best friend. I’m not that person, and I don’t have a large virtual network of adoring fans (I know, it’s odd), so I had to drop it. My single attempt to make a sales pitch to an Uber driver was a complete failure. His eyes in the rear-view mirror told me everything I needed to know. Lady, please.
But Anna, who has a successful lifestyle blog with thousands of readers, found that she was able to sell Beauty Counter products by leveraging her existing network. There is something to be said for having an established presence online — and credibility — before you present something new.
Cara noted that the purchasing power of your network is a factor as well. You might have lots of friends, but if they’re just scraping by month to month, they probably won’t splurge on your stuff, even if they love you to pieces. “I had a hard time with MLMs because they tend to rope people in who need money and don’t have a networking base that has expendable income,” she said.
Veruschka, who lives in South Africa, observed that luxury items (like NuSkin) simply don’t sell in Africa; people there wanted inexpensive things, so she would have needed to choose a product more suited to her customer base.
And there is one customer in your network whose opinion about the product matters most: you.
3. Do you love and believe in the product?
Your personal conviction about the product is really important. I was only mildly convinced about the product I was selling, so I interlaced my “sales pitch” (to one friend) with apologies and disclaimers. Not surprisingly, she declined (our friendship survived, though).
For Kristin, who discovered that essential oils were a tremendous support for her and her family during her battle with Lyme Disease, enthusiasm about selling the oils comes naturally.
“I believe any success comes from a conviction and love for the product, consistency, and most of all being real and authentic about who you are. I fell in love with what the products did for me, so it was natural to share,” she observed.
So, if you’re just kind of “meh” about the product, better to set it aside and look for something that would be a better fit for you and for your people. Make sure the product is something you’d want to share with people even if you weren’t selling it.
4. Are you get-out, crazy-determined to work hard until you make it?
Everybody who has ever succeeded at an MLM says the same thing: It’s a numbers game. Anyone can do it if they put in the time. You get out what you put in. It takes hard work. You have to treat it like a job, not a hobby.
Anna Jacqueline said her MLM gave her the income of a second job, which was really helpful in getting her through some financial “rough patches.” She said, “My success directly correlated with time and effort — and putting quality into that effort… not just blindly sending out messages trying to sell stuff or recruit people.”
Kristen, another women who’s succeeding — or at least, not flaming out — emphasizes having a vision and going after it with total determination and creativity: “I think mindset is 90 percent of our success in anything in entrepreneurship. How many hundreds of times was the founder of Starbucks turned down for bank loans to start his business? It takes GRIT, resilience and a ‘no matter what, I’ll figure it out attitude.'”
In some cases, the people who succeed at MLMs are the ones who need it the most, the ones who are hungry. Sometimes, quite literally hungry.
A friend of a friend, who went on to become a millionaire from his MLM, said his rock-bottom moment came when he was at a gas station, watching the greasy hotdogs rotating on the aluminum rollers… and knowing he could not afford to buy one because he was that poor. He found himself wondering, “Where did I go wrong in my life?” The MLM gave him a way to take charge of his destiny and turn things around. He was determined as heck because he had no safety net. It was do or die. So he did it.
So, if your company is not a scam, you have a decent network, and you love the product, the next question is: are you crazy determined to make this thing work? If not, you might be better off letting it go.
If yes, you might have a shot at this thing.
Find what’s right for you
In the end, no one can tell you whether you’ll succeed at an MLM, but you can save yourself some time and money by answering those four questions above and by being aware of the low rate of success.
And again, do be wary about which company you join. Even large and well-established MLMs can operate like pyramid schemes. For example, the Federal Trade Commission fined the well-known Herbalife the whopping sum of $200 million and ordered it to restructure its business model to “start operating legitimately.” The 2016 documentary film Betting on Zero exposes how Herbalife — which is not technically a pyramid scheme — still acts like one and has defrauded thousands of people of their savings.
Not exactly the success story we all hope for, but it happens, so be careful out there. And good luck!