What is a Multi-Level Marketing Business? An MLM business is when a company uses a Multi-Level Marketing strategy to promote and distribute products or services through a network of independent sales reps. If you’ve been approached by a close friend or family member about an “exciting new opportunity,” it’s likely an MLM. While MLM has been around for a long time, Is multi-level marketing a scam? Is MLM a good business opportunity? I’ll be answering both these questions and more in this article.
What is a Multi-Level Marketing Company
Multi-Level Marketing companies sell their products through a network of sales representatives instead of selling them in a traditional retail marketplace. The sales reps are required to buy a minimum amount of product to be eligible to participate in the company’s commission program. As a result, an MLM company’s commission program often takes the form of a convoluted Membership Program.
Multi-Level Marketing Company Membership Programs
The way MLM companies compensate their members vary. Still, the commission is always structured in the form of a Multi-Levelled Membership Program. Members move up the different tiers based on how many people they recruit. Then, depending on the company’s program, each level provides a reward or bonus. The reward can be a higher commission from each product, a paid vacation or even a luxury car. Regardless of how an MLM company structures its commission model, it is designed to do one thing: incentivize its sales reps to recruit new members.
Is Multi-Level Marketing a Pyramid Scheme?
Multi-Level Marketing is not a pyramid scheme by definition. However, it depends on how the company operates and structures its commission model. An MLM company must have a product or service to sell to operate legally. Pyramid schemes, on the other hand, do not have a product. The income a pyramid scheme generates comes from recruiting new members. While most MLM companies have a product, they often walk a VERY fine line between being a pyramid scheme and multi-level marketing.
Does Having a Product Make an MLM Legal?
Having a product doesn’t mean that a Multi-Level Marketing company operates legally. Because every country has different laws that regulate MLM companies, it can be challenging to say if an MLM is lawfully operating everywhere. However, regardless of local laws, the fact remains: if the MAJORITY of your income comes from RECRUITING and not the sales of a product, it is a pyramid scheme by definition.
The Focus is Always on Recruiting
While MLM companies have a product to sell to comply with local laws, the primary focus is on recruiting new members. I have yet to encounter an MLM that bases its business objective on selling the product. This is because there is more money to be made by recruiting new members. Selling the product is always secondary because product sales commissions are paid in “points,” not cash. This stacks the benefit of recruiting in the MLM company’s favour. To be paid in cash, you have to recruit new members to be eligible. While this MIGHT vary because most MLMs have different compensation plans, they generally all operate the same.
Is Multi-Level Marketing Ethical?
While multi-level marketing is technically legal, it is unethical. When MLM sales reps recruit people to join an MLM, they earn a commission from their sales, even when the people they recruit are taking a financial loss. The vast majority of people who join MLMs lose their money. While many businesses fold within the first few years of operation, how an MLM is structured virtually guarantees most members will fail. The primary reason for this is that to earn an income with most MLMs, you have to buy a certain amount of product to be eligible to receive sales commissions. If you have a terrible month and fail to buy more products, you lose the ability to earn commissions and any “points” built up under you.
MLM is Big Business, But it’s Not YOUR Business
MLM companies and their members would have you believe that members are “business owners.” However, this is far from the truth; legally, they are independent sales contractors. While members may have a degree of freedom to sell and distribute the company’s product, they are still restricted by the MLM company’s policy. This makes MLM members more akin to commissioned employees. On the other hand, a business owner has control over the company policy; MLM members do not. To be a business owner at the most basic level, you must have control over the following:
- Company Policy
- The Products
- Product Pricing
- Own actual shares of the company. i.e. Stock Options
- Legal
If you do not have control or a say in any of these critical aspects of a business, you DO NOT own the business.
MLM vs Affiliate Marketing
When you join an MLM, you are restricted to selling the company’s products, and you don’t own any company assets. Moreover, what you get paid can change, and the decision is made by your company, WITHOUT your input. If the company folds, you and the people under you no longer have an income, as you would with a regular job. However, suppose you are an affiliate marketer. In that case, your Niche Blog is an asset that you own, akin to digital real estate. You are not restricted to what niche you operate in and the products you promote on your website.
Affiliate Marketing is Like Digital Real Estate
When you buy a domain name, you have the freedom to do what you want with it. The website you create on your domain is like a piece of land; you choose what you build on it. In fact, you can even sell real estate with affiliate marketing if it is your niche. However, unlike Multi-Level-Marketing company promoters, Affiliate Marketers get to set the terms of how and when we are paid. So, whether it’s real estate or an affiliate marketing business, as long as you pay your taxes, you can run your business however you like.
Conclusion
While it is true that you can make money with MLM, most people who join them do not. MLM is not a recommended way to earn an income online or offline. MLMs often require you to buy a minimum amount of product to be eligible to earn a commission. If you fail to pay for the product, you lose your “points.” Meanwhile, the company continues to make money from the products your recruits buy. To enjoy the benefit of the recruiting aspect, you need to have members who are actively recruiting under you or recruit new members yourself.
Bonus: Here You’ll Find my Responses to Common MLM Fallacies
BP: MLM is a business
A: Did you register it yourself? Can you choose
BP: MLM is not a pyramid scheme. JOBS are Pyramid schemes!
A: Jobs provide a reliable income, and you don’t pay your boss to work there.
BP: My MLM is legal because I get paid!
A: Drug Dealers and Bank Robbers also get paid. Until they get caught.
BP: Our health products are expensive because they are superior to retail products.
A: Is that claim backed by peer-reviewed science? People need their health, but they don’t need your product to attain it.
BP: The health industry is a trillion-dollar industry, and we operate in it
A: So? That doesn’t mean you’re guaranteed to make money selling your health product.
BP: We have a disruptive industry product!
A: Okay, great, so why not sell it in a retail store? Why does your MLM company need you?
