WHY SHOULD ONE AVOID AN MLM SCHEME?

WHY SHOULD ONE AVOID AN MLM SCHEME?

The idea behind multi-level marketing (MLM) is simple. Imagine you have a product to sell. A common MLM product is some sort of panacea, such as a vitamin or mineral supplement. You could do what most businesses do: either sell it directly to consumers or find others who will buy your product from you and sell it to other people. MLM schemes require that you recruit people not only to buy and sell your product, but who will also recruit people who will not only buy and sell your product but also recruit people....ad infinitum. Only there never is an infinitum to move towards. This may seem unusual to traditional business people. Why, you might wonder would you recruit people to compete with you? For, isn't that what you are doing when you recruit people to sell the same products you are selling? MLM magic will convince you that it is reasonable to recruit competitors because they won't really be competitors since you will get a cut of their profits. This will take your mind off the fact that no matter how big your town or market, it is finite. The well will go dry soon enough. There will always be some distributors who will make money in an MLM scheme. The majority, however, must fail due to the intrinsic nature of all pyramid schemes.

Multi-level marketing is system of marketing which puts more emphasis upon the recruiting of distributors than on the selling of products. As such, it is intrinsically flawed. MLM is very attractive, however, because it sells hope and appears to be outside the mainstream of business as usual. It promises wealth and independence to all. Unfortunately, no matter what the product, MLM is doomed to produce more failures than successes. For every MLM distributor who makes a decent living or even a decent supplemental income, there are at least ten who do little more than buy products and promotional materials, costing them much more than they will ever earn as an MLM agent. The most successful MLM scheme is Amway. It has millions of distributors worldwide with sales in the billions. At the turn of the century, the average Amway distributor earned about $700 a year in sales, but spent about $1,000 a year on Amway products. Distributors also have other expenses related to the business, e.g., telephone, gas, motivational meetings, and publicity material (Amway.com; Klebniov 1991).

The reason MLM schemes cannot succeed is because MLM marketing is, in essence, a legal pyramid scheme.  The basic idea is for a sales person to recruit more sales persons. This is very advantageous to those who own the company and supply the products, especially since the sales persons in MLMs are also customers. But it is puzzling why a sales person would think it is to his or her advantage to increase the number of competing sales persons.

This is not to say there is no benefit to MLM membership. You get certain tax write-offs. You get to buy products, some of which you will be happy with. You get to go to inspirational meetings, some of which will make you feel good. You may meet new friends and you may even make a few bucks. But more than likely you will end up alienating some family and friends. You will probably end up buying more stuff than you sell. And you will learn a lot about deceiving yourself and others. You won't be allowed to tell anyone how you are really doing, for example. You will always have to think positive, even if that means lying. You will have to tell anyone who asks that you are doing great, that business is wonderful, that you've never seen anything go so fast and bring you income so quickly, even if it isn't true.

A word of advice when looking into a network marketing business opportunity - unfortunately some pyramid schemes have tried to mimic the network marketing business model before being discovered as fraudulent, therefore you have every right to be initially concerned. For your benefit we have put together a list of questions that you can ask yourself prior to signing the dotted line to help you identify a legitimate company from a fake one.

In particular, the following 2 questions:

1.  Is there a legitimate product involved?
What do you get in return for your start up investment, other then the potential to earn good money? If you're not getting a product or service or if the training tools appear to be overpriced you could have discovered a scam.

2.  Do you get commissions based on product distribution or on recruitment?
If they are paying commissions based purely on recruitment, walk away now.

Additionally, you should also consider the following factors that might influence long term success.

Be aware of hype and ground floor opportunities
Although some people might claim you earn more money if you get in first, this is never the case and these are companies that normally fold within the first couple of years. It is much safer to join a company with a proven track record.

Does the company have a proven track record?
If the company has been around for a few years then there is a fair chance that governing bodies that police pyramid schemes have already pulled the business model apart and given them the ok. Publicly traded companies are normally your best bet.

Will the company buy back any unsold product?
Most network marketing companies have a money back guarantee which means that if you are unhappy with the products you can send them back for a refund. Given that the majority of your start up kit was product, if you’re not happy with the business you should be able to send back any leftover product to refund most of your start up costs. Try network marketing and potentially become very wealthy, or if its not working for you send your product back for a refund, its a win-win! Naturally a pyramid scheme is not going to refund your money.

Is this a get rich quick scheme?
Although there is a lot of potential to earn very good money in network marketing very few have made it quick, most make their millions through consistent effort. So if it sounds to good to be true, it probably is.

Shop around
If you are looking into the industry for the first time dont be scared to look at other business models and products, particularly if you dont know which company to join. There are many discussed within this webpage.

What training do they provide?
A good company has a solid training system.

To finish with, we strongly advise that you take the time to make your decision, dont be pressured into joining right away, do your homework.

Remember it is better to be safe than sorry.