Is Multi-Level Marketing Legit?
Multi-level Marketing, or MLM, has been around a long time. Also called network marketing, there are probably hundreds of companies that use the multi-level model. Are MLM companies pyramid schemes? Usually not, although some come pretty close.
A pyramid scheme, or pyramid scam, is a business model that works by a member recruiting other members in a downline where the compensation plan is funded by the recruiting of new members. Products or services are not the main method of compensation, the recruiting of downline members is.
If a company uses downline recruiting it is not a pyramid scheme if it also promotes and sells products or services. Amway, Melaleuca, Avon, Herbalife, and many other companies use MLM to make money. MLM seems to be the marketing plan of choice for lots of health and wellness products too.
These are legitimate companies, with quality products. If you are interested in joining one, go ahead. I’ve tried a few in the past, and never had much success. You might, though.
Eliminating The Middle Man.
Back in the day, when I was signed up with some nutritional company or other that was using MLM as a business model, I found a pamphlet that explained the way MLM worked. It essentially eliminated the wholesaler. Here’s the “traditional” business plan:
So, in the above chart, the service provider or (product producer we can say), sells his product to the distributors, normally called “wholesalers.” for $7.50 each. The distributor, or wholesaler, then sells the product to a retail store for $8.00, making a profit of $.50 on each sale. The retail store then sells the product to the customer for $10.00, making $2.00
Of course it depends on the product or service industry just how much markup the customer base will accept. Grocery stores, for example, only make a few cents profit on most of their items, but they sell so many that they make a good profit.
With MLM, the distributor and his or her downline replace the blue and yellow levels on the chart. Depending on the business, most MLM companies determine the selling price of their products, and the distributors and their downlines sell them for the set prices. The wholesaler is eliminated from the equation.
Here’s a typical downline:
Can you see a problem with replacing the two middle sections of the traditional chart with the above downline?
Think about it……
There are 13 people in the downline above. Assuming we are the wholesalers and retailers, which is what MLM does, then we get the product for $7.50 and sell it for $10.00. We make $2.50 for each product sold.
Now, if I”m the only person, I get to keep the $2.50. But I’m not. If I have an upline,and I will unless I’m the very first person to sign up, I have to share it up however many levels the marketing plan requires. Suppose I’m one of the purple guys on the bottom. I make a sale, I get some of that $2.50, but the rest goes up the line to the people in my upline, however many levels the plan requires.
So, instead of making $2.50, maybe I get $.50 and the rest goes up the line. That’s not much, but if I have a downline myself, I get money from the sales that they make, so I should be able to get that money back, and more.
The problem is being at the bottom of the line. If you don’t have a downline of your own, you don’t get much money.
Markups Are Too High.
Another problem is that MLM companies sell their products for higher prices in order to get enough from a sale to pay all those distributors. Usually you can find similar products at retail stores for half the price of an MLM product.
What happens then is that people who don’t want to be in the “business” don’t want to pay the higher prices for the products, so distributors end up buying for their own use and that’s about it. Again, if you’re at the bottom of the line, you don’t make anything. The people at the top make all the money.
Here’s an example from Herbalife, a company I was signed up with once upon a time:
Holy Cow! What they don’t tell you is that 94% of Herbalife distributors make nothing at all. They sure didn’t tell me. If you do finally make it to the third level up, your annual income is less than $500.00. Per Year!
Only the top 0.5 percent of Herbalife distributors make a significant annual income.
I wasn’t shown this chart when I signed up, and, true to form, I made the average for the bottom 94% of distributors, $0.00.
Actually I lost money.
To Succeed With MLM, You Have To Be A Recruiter.
It’s as simple as that. It costs very little to sign up with one of these MLM companies, and they’re happy to have you, but you will make very little money selling products, simply because they are marked up so much compared to the same things in retail stores.
If you want to make money in network marketing, you have to be able to recruit. That’s all there is to it, in my opinion. If you are an enthusiastic, charismatic go-getter, then you will be able to draw people into your downline, including friends and relatives, and position yourself to make the big bucks.
That is, until the people you have recruited get disillusioned and start to drop out…
Just know that you will be constantly recruiting.
My cousin Bryon made a successful income in MLM, for a while, then, even though he was making a good income, he got tired of the constant recruiting and hard work and he quit his business.
Without constant work and effort, in my opinion, it’s hard to consistently succeed with MLM.
There Has To Be A Better Way.
Fortunately there is. Affiliate marketing is a business model where you can reach the point where you are making a strong passive income. You don’t have to be constantly recruiting, cajoling your downline, trying to keep them working and trying to succeed, and hoping they don’t quit. You can build your business, then relax and watch the money roll in from the work you have already done.
The absolute BEST affiliate marketing platform available today is Wealthy Affiliate. You get to enroll for FREE, learn the ropes for FREE, choose your business direction for FREE, setup your first two websites for FREE, and learn how to add quality content to your sites for FREE. And much more.
Once you’ve finished your FREE starter training, which consists of 10 complete lessons, you can enter the paid part of the training if you want and launch your business into the stratosphere! Soon you’ll be attracting customers and making sales on your websites while you sleep, or go on vacation, or do other things.
You can then continue to grow your business until you become one of the elite, a super affiliate, earning over a million dollars a year! All without a downline!
You can start immediately! Click on Wealthy Affiliate or on the banner below. You will be taken to the start-up page where you can sign up and get your own business started. It doesn’t make any sense to wait, does It?
Disclosure: The FTC says I have to let you know that if you click on an affiliate link on my website and end up purchasing a product, which you won’t do until you decide to leave the FREE side of Wealthy Affiliate and enter the paid side, then I will be paid a commission. I’m happy to tell you that, because that’s why I blog, to earn an income with affiliate marketing. Join me, and I’ll be there to help you along the way.
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