The often polar views when it comes to the topic of multi-level marketing can make it a controversial topic to discuss. Some people are passionate about its benefits, and there are even some well-known marketers that have invested in it and continue to advocate for it. On the other end, many people dismiss the moneymaking opportunity, with some even going as far as branding it as a scam. This article takes a look at why you may want to avoid multilevel marketing.
WHAT IS MULTILEVEL MARKETING?
Multilevel marketing is a form of direct sales marketing strategy where the revenue of the MLM company comes from a non-salaried group of distributors who sell products or services from the company, while the earnings of the distributor are determined by a compensation plan put in place by the company.
Here some of the most commonly used terms in the MLM business space:
A sponsor is a representative who directly recruits you into the business. For instance, if member A brings in member B into the MLM business, member A will be referred to as the sponsor and is often tasked with training member B.
A recruit may also be called a team member. This is a person who is brought into the MLM business opportunity by a sponsor as a new member
Your downline comprises of the recruits that you bring in below you. This usually includes the members that you recruit as well as those who are brought in by your recruits.
The upline is made up of sponsors who were part of the MLM opportunity before you. For instance, if member A recruits member B, who recruits member C, who then, in turn, recruits you, your upline will consist of C, B, and A.
- Compensation plan
The compensation plan details how you are supposed to make money as a distributor. Along with commissions on the sales made by you and your team, many MLM companies also pay bonuses as well as increased commissions based on the volume of sales.
- Network marketing/referral marketing
Multi-level marketing is often also referred to as network marketing or referral marketing.
HOW IS MULTILEVEL MARKETING SUPPOSED TO WORK?
- Signing up
In many cases, you will be approached to sign up for an MLM company by an existing distributor, who will be your sponsor. Some MLMs require that you undergo extensive training under the supervision of your sponsor so that you become familiar with the products, how to sell them, and the process of recruiting other distributors when the time comes. You may need to invest a specified amount to purchase a starter kit that you will use in selling.
- Retail selling
One of the ways you can earn working as an independent distributor for an MLM is by selling products. The commissions you earn will depend on the volume of products you sell.
- Recruiting and building a network
The other way you earn is by recruiting new members and building your distributor network. When you bring in a new member, you get to earn from their selling efforts, and if they bring in someone else, both you and the distributor you recruited get to earn commissions from the selling efforts of the second distributor. The distributor that you personally recruit go directly under you to form the first level, and those that the first level distributors recruit form the second level, and so on.
WHY IS MULTILEVEL MARKETING UNLIKELY TO WORK?
- MLMs rely heavily on recruiting
While direct selling is one of the ways you can make money as an independent distributor for an MLM, the main focus is usually on the recruitment of new members.
For example, when the United States Federal Trades Commission (FTC) investigated Herbalife, they discovered that distributors did not make a profit from retail selling and that their income solely came from the recruitment of more distributors. As a result, FTC hit Herbalife with a $200 million fine and demanded that they overhaul their compensation structure.
Similarly, Doterra, an essential oil MLM, expects you to buy and sell products that are significantly more expensive than what you will find from other online retailers. This is not just limited to Doterra – most MLM products are usually more expensive than their counterparts.
In summary, the only way you can make a considerable amount of money from MLMs is by recruiting a large downline under you, which is something only a handful of people can achieve.
- You almost always have to pay to become part of the opportunity
To become part of an MLM, you are usually required to pay a registration fee, after which you may have to pay a recurring fee to remain a member. In most cases, you may fail to make back the money that you spend to maintain your membership, so instead of making profits from your investment, you end up making significant losses.
- The structure of MLM makes it almost impossible to make money
Because of the way MLMs are structured, it is almost impossible for most of the participants to make money from them. This is because MLMs rely on people at the bottom of the pyramid to recruit new members to send earnings to flow up to the small percentage of people who manage to attain the top positions.
Due to how an MLM is modeled, as the number of distributors increases, the chances of recruiting a large downline diminishes for those that are the bottom of the pyramid. Therefore, regardless of what you might have heard, the business opportunity is not unlimited, as those who join at the bottom of the pyramid are unlikely to recruit as many distributors as those who have attained the top positions due to oversaturation which limits your ability to find new members.
- MLMs rely on incentives to recruit distributors
It is quite common to find MLMs offering incentives such as overseas trips and free cars to entice distributors to join and recruit new members. While these offers are enticing and seemingly generous, you are only eligible to receive them if you manage to sell a certain number of products by a particular time.
It is also worth noting that these rewards are used to tie you into higher sales – car payments and statuses can be easily taken away from you if you fail to maintain your sales and recruitment numbers. Therefore, in the case of a free car, for instance, you can be left with costly monthly lease payments to cover.
In many cases, when distributors find that there are few sales short from attaining their monthly quota to maintain their status or keep their car payment, they end up buying the products themselves. Some MLM sponsors even encourage distributors in their downline to make persona orders so that they can achieve promotions. Some MLMs even blatantly encourage their distributors to use their products to get their sales up.
- There is a high turnover rate
Distributors working for MLMs need to constantly recruit new members to replace those who give up on the job. Herbalife, for instance, loses about 90% of their distributors who don’t qualify as supervisors, and 60% of their supervisors within a year. This is not an isolated incident as the turnover rate for other companies with an MLM business model is often just as high.
The issue is that most MLM distributors rarely shed a light on why they quit, with most of them putting their efforts in promoting the business when they are still part of the team. This is because when new members become part of an MLM, they are typically trained to broadcast the positive aspects of the business on various platforms. However, when these representatives finally decide to quit, many of them tend to quietly slip away or immediately join another MLM with the hopes that the new opportunity will work out better.
So regardless of what may be advertised online, the truth is MLMs usually need to recruit new members aggressively to replace a high turnover of distributors who are unhappy with how the opportunity turned out.
- You don’t get to own anything (except for expensive inventory)
Many MLM representatives tend to describe themselves as independent business owners, but in reality, they don’t get to own anything. As a typical business model, you will usually have the option to choose your product range and have the option to shop around suppliers for the most ideal deals. However, as a sales representative for an MLM, you have no say when it comes to the products you sell or the prices set. You also don’t get to decide the profit margin you want to make – your commission level is usually already decided for you.
As a sales representative, you are forced to rely on the policy that the MLM you choose to work for has adopted, and as seen with many MLMs, these policies can change quite quickly. In some cases, you may even be instructed on what to post on social media in efforts to promote the company. as a result, you are more like a lowly paid sales representative with no guaranteed income rather than a business owner.
- Many MLM companies are unregulated
MLMs generally have a complex structure, which can make it hard for a new member to figure out exactly what the business or even how it works. Many of them are also unregulated, and the laws that are associated with MLM practices lacking a clear definition. Additionally, MLMs are not even legally required to publish their income disclosure statements to show how commissions are paid out to distributors, or how much money they lose.
On top of this, you will typically come across representatives who are desperate to recruit as many new members as possible or convince customers to buy their products, often resorting to making crazy claims to seem more convincing.
- Many MLMs are structured like pyramid schemes
A pyramid scheme is commonly described as a form of investment that brings in members with the promise of services or payments for enrolling other members into the scheme, instead of supplying investments or product to sell. This is strikingly similar to how MLMs work, as you are usually required to pay to become a member (in the form of a starter kit) and then start earning money from the new members you recruit who become part of your downline. This takes the form of a classic pyramid scheme, with only those at the top managing to fully benefit. The only difference between these models is MLMs have actual products for representatives to sell.
- It requires a lot of your time and effort
While MLMs are touted as a great way to make a second income, they require you to invest a lot of time and effort for very little to no profit. The recruitment aspect needs a lot of effort on your part to find people who are willing to invest in a controversial business model, as well as a lot of time to build a downline to increase your commission rates. Making sales of MLM products also requires you to make a lot of effort when it comes to convincing customers to purchase the products you are selling.
While multilevel marketing can be a viable way to make money online, it is rare to find success with this business model due to how it works. I would recommend other ways of making money and building your own business. But if you really want to create a long-lasting business with the possibility of making life altering income, I have a recommendation!
WHAT IS BETTER THAN MULTI-LEVEL-MARKETING?
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To your success,
Check out these posts for more info!
How to start in affiliate marketing
Create an income with affiliate marketing
10 thoughts on “Why Multi Level Marketing Doesn’t Work – The Honest Truth!”
Love the review! I appreciate the terminology descriptions as well. I have been part of an MLM a few times and every time it turns out bad for me. I have a friend that is exceptional at it and constantly makes good money. However, I have found that is a very rare ending. It is the few that make it big while the majority struggle to even keep stock or retain customers and recruits. It was very frustrating every time and I run the second somebody starts trying to sell me the high life of being a distributor or whatever they want to name it with a company. I will definitely check out the affiliate marketing information that you provided and see where that takes me. Thanks!
Thanks for your comment! There is definitely a very small group of people that actually make money with MLM. But that is not the norm as you stated above. Recruiting down lines and selling “stuff” to family and friends is much harder in practice than the ML companies would lead you to believe,
I love affiliate marketing and I highly recommend that you give it a thorough look. Check out Wealthy Affiliate! You will not be disappointed!
Some thoughts on MLM
Thanks for your extensive outline of MLM businesses.
I started an MLM business in 1972. I played with it for about 4 years, and then decided to actually do some work. I was also employed full time, and had another part time job.
Within 12 months of starting to actually work at this MLM, I had replaced my full time income. And yes I was one of the many successful distributors who qualified for many overseas trips to China, Asia, Pacific Islands and USA. Not just a few of us but we went with several hundred fellow distributors to start and later thousands.
A great lifestyle. Just like WA.
The MLM I was part of was in fact an inside down pyramid. The only way you could succeed was to help those you “recruited” succeed first.
Regarding product use, yes there was a requirement to use the product yourself and/or have a group of personal customers. The only way profit can be made was with the sale of product.
My 4 children had a fantastic time growing up, where I could go to “milk & fruit” at pre-school and later all their sport days during school hours.
We were able to choose our lifestyle.
A personal situation had me move to the USA after amicably ending 30 years of marriage, to find another beautiful lady, who I’ve now been married to for almost 20 years.
I left the MLM business to my previous wife who continues to run it today.
When I moved here from Australia, I wanted a similar business and finally found Wealthy Affiliates. This was after trying many other affiliate marketing programs that were very similar to all the bad MLM businesses you mentioned.
I believe it’s a matter of finding the right program that suits you, and for us Wealthy Affiliates is the way to go.
Thank you for your lengthy response. I also want to thank you for bringing balance to my post. My experience with MLM has been horrible and many of my peers have had the same negative experience. Your point is well taken though 🙂
Wealthy affiliate is a shining light among a sea of scams. I am glad you found a new home for your business endeavors. I want to thank you again for sharing your experience with us. it bring a new (positive) light on MLM, which I have admittedly been a bit negative on!
To your success!
HI Mike, I found this to be a very interesting article, as I have been a member of two MLM businesses and am still involved in one of them. You gave a really nice unemotional description of MLM and the general structure and like yourself I feel that the time for this particular business model is reaching its use by date. Although, the MLM that I am still with is huge, respected and in 147 countries I found that the constant recruiting was just too over the top.
Yes, they offer you great holidays (not sure I want to be forced to holiday with the same people forever) but the pressure is enormous to get enough sales and I feel that this pressure even puts people off from buying at wholesale from their own business as members. This is sad as the products are excellent (I’ve been using them for over 40 years). I have lots of down line who have never bought another product after joining and that’s sad. I consistently get a bonus per month from this business that comes from my own usage and a little down line.
In comparison to the point system used in our local large food outlet, I receive about $150 a year back, compared to about $80. I’m always happy to get money back from buying basics, so as you can see it has been worth sponsoring people into my MLM business.
The problem I find now is that the control this company has over internet advertising does not allow me to promote this business online. In great frustration as I love the products, I started looking online for another business and found your great review. I will be looking closer into affiliate marketing, where I make my own business decisions and still keep my little MLM for my own use.
Thank you for bringing balance to my post. I am glad that one of the MLMs you participate in is working for you. I want to reiterate that not all MLM’s are doomed to fail. Unfortunately, the news are full of lawsuits and ponzi schemes associated with MLM. These give the whole business model a bad wrap. Having said that, I still think that Affiliate Marketing is an excellent business model with a lot of upside!
Thanks for your long and thoughtful comment. I appreciate you taking the time to write it.
I totally agree with you that the way MLM is set up, it is close to not possible to achieve any sort of breakthrough with it when it comes to making money. This is really great and I fancy it a lot. For all is worth doing at all is worth doing well. I have personally lost money twice with mlm and I’m not ever going to join any such platform ever again. Thanks
Hi Rodarrick! Sorry to hear that you lost money with MLM. I hope that you found the post helpful and that you took a look at my recommendation of Wealthy Affiliate. Check it out and see what you think!
I agree with you wholeheartedly! As soon as I realize something is an MLM I turn and run. I got suckered a few times. Lost some money. I have learned that if someone I hardly know comes to me and offers some really exciting new business opportunity and they’re just gushing with enthusiasm I need to shut them up pronto! Politely but firmly tell these recruiters that if you want to sign your life away you’ll join the military and actually accomplish something.
I love the program you linked to! Thanks for helping me out!
Hi Cathy! LOL at “signing your life away”. Unfortunately, more often than not, your assessment and reactions to MLM are spot on. There have been too many legal cases, lawsuits and ponzi schemes associated with that business model. It is normal and healthy to be weary!
I am glad you like Wealthy Affiliate. I agree that it is awesome. I love it too 🙂