Multi-Level Marketing (MLM), also known as Network Marketing has arguably been around for about 100 years. And you thought it was something fairly new, didn’t you? In spite of it’s long history, a lot of people are still wondering What is Multi-Level Marketing About? Come on along as we take a little tour and discover some answers, too.
You may enjoy this Dave Ramsey video about MLM companies.
My takeaway from Dave Ramsey’s video is that you must be prepared to become a recruiter and training manager to succeed in multi-level marketing. This pretty much sums it up, and shines a big old Klieg Light on why so many people fail with multi-level marketing.
Is this a fair response? Maybe. From what I’ve seen, it’s a pretty normal reaction to the techniques many of these companies use during the recruiting process.
What’s Involved in an MLM?
If you’re currently on someone’s recruiting list, think about the things they’re telling you about the business. The top three enticements most companies generally focus on are:
- It’s your own business
- You’re the boss and can work the hours you choose
- You can build a team and the team will make you wealthy
Sounds pretty great, doesn’t it? But, before you rush out to sign up, let’s consider each of these a little more carefully.
It’s Your Own Business
No, it’s not. It is now and always will be someone else’s business.
- They can decide to change the commission structure whenever it’s beneficial for them. Just talk to the consultants at LuLaRoe that lost thousands of dollars in commissions.
- They can terminate the MLM portion of their business and go to a direct sales model if it serves their purposes. In July 2019, 100,000 Advocare distributors saw their businesses wiped out when the company decided to eliminate their MLM model.
- They can just decide it’s no longer profitable to do business in your area, and shut down all operations. This is exactly what Mary Kay Cosmetics did to their distributors in Australia and New Zealand in March, 2020.
Years spent building up a brand was irretrievably eliminated.
What you will be if you decide to give multi-level marketing a try is an independent contractor. The company assumes no responsibility for your actions, and you have zero say in how the company is run.
You’re the Boss
This part is true. And, you absolutely set your own hours. If this business has any hope of getting off the ground, you need to get busy and stay busy. Skating along, working a few hours a day only works if your goal is a tiny, part-time income, or you’ve already put in the work and have a large team working for you. Just like the children’s game, “you’re it!”
Let’s assume you’re looking at a product that depends, for the most part, on party sales. If you’re told the average party only takes 2-3 hours, and you’ll only need to do a couple a week to see real money, look a little deeper. Many things must happen before the party sees the light of day. You’ll need:
- Someone to host a party for you
- A list of guests
- Invitations out to these guests
- Follow Up with the guests to get them there
- Shopping for supplies you might need
- Arranging for childcare if you need it
- Packing and transporting your necessary items to the party
- Tables and props to display your products
- Pens and order forms
- Games and necessary prizes
- If you carry inventory, filling the orders on the spot
- Repacking and transporting your products back home
- If you carry inventory, placing a restocking order
- Following up with potential new hosts
- Rinse and repeat
This is in no way a comprehensive list. There will be a number of other items your particular MLM will require. The thing to keep in mind is that you need to factor in all these additional hours to the 2-3 the actual party will take when you’re deciding if you really have the time necessary for this type of business.
That brings us to the third selling point most MLM recruiters hype.
Build a Team and Become Wealthy
Did you think the list above was probably doable? Did you watch the Dave Ramsey video at the top of the page? Building a team may be the least understood segment of multi-level marketing.
Like Mr. Ramsey said, if you’re after the really big bucks and a team that will be out there busily building a kingdom for you, you must become a recruiter and trainer. If you’re big on job security, this is right up your alley, because this is going to be a never ending proposition.
Most people get a whiff of how much effort is involved in multi-level sales and quit. When they realize they’ve signed up for a sales job, and they get turned down a few times, they can’t throw that old towel in fast enough. This is not a business for the faint of heart.
Research shows that more than 50% of all recruits are gone within the first year. One out of every two individuals you recruit will be gone within 12 months after you sign them on.
Did I Forget to Mention?
Remember that list above showing a few of the activities that will require hours of additional time to make a success of this business? I left one big one out. Training. If you have dreams of the folks on your team making it big so you can make it bigger, you’ll have to invest massive amounts of time into training them.
Since you don’t know which ones will stick if out, and which will be gone the next time you blink, you have to train them all. You’ll have to hold individual training sessions, and group meetings. If you’re good at remaining excited about the business, and making a presentation you’ve done hundreds of times seem fresh and exciting, this may be worth considering.
On the other hand, if having a root canal sounds like a better option, better think long and hard about an MLM opportunity.
I told you earlier that how most people are recruited is part of the problem. Another reason people fail involves exactly who is being recruited.
Three of every four people recruited into multi-level marketing are women. Part of that’s because most products sold by MLM companies appeal to women more than men.
When you recruit individuals with little to no retail or business experience, you’ve got a sure-fire recipe for failure.
If you take an honest look at the complaints being made by previous consultants, you see what I saw. Lots of young women with little or no sales, or business experience just wanting to share something they found and loved with other people just like them.
They also loved the idea of providing some of the luxuries of life for their families too.
The fact that this is a cold, unflinching sales business was probably never presented to them. In an effort to sign more and more consultants on, only the rosy information was shared with them. When they discovered the real scenario didn’t match the one that had been presented to them by over-zealous recruiters, they became frustrated or disgruntled. For several reasons.
- Most people don’t realize how hard they’re going to have to work. (If you’re recruiting young moms, they simply don’t have the amount of time to devote exclusively to a business to make it the success they dream of.)
- They were blamed for being lazy or not wanting success badly enough when what they really lacked was a business education and a framework to work within. A good mentor may have done wonders. (The people responsible for this were probably in the same boat.)
What you repeatedly end up with are people who were only looking for a little extra spending money, a little time away from the kids and housework, and a little fun.
For too many, it turns into a financial nightmare.
Many of these companies require you to meet monthly or quarterly quotas to remain active. This pushes lots of individuals to purchase the items themselves, hoping to sell them at a profit later. Unfortunately, if your company introduces new products with any regularity, this puts you in a difficult position.
In order to move outdated products, you may be faced to sell them at deep discounts and lose money in the process.
Consultants can find themselves in terrible credit card debt just trying to keep their businesses afloat.
Let’s face it. Unless your MLM has a product truly unlike anything else available to the buying public, you’re facing competition. Competition from brick-and-mortar stores. Competition from online stores. Competition from the Big Box stores. Competition from your own MLM if they also have a retail division that sells through Amazon and EBay, like many of them do.
Keep in mind that MLM sales amount to about 1% of retail sales made in the U.S. Even if your company doesn’t require you to carry stock, you may discover that this is an absolute necessity if you’re going to be competitive.
Carrying enough stock so you can send customers home with their products requires hundreds to thousands of dollars worth of inventory. Once you’ve bought it, you own it. If there’s a problem, you absorb the loss.
A Few Statistics
Besides all of the concerns I’ve already mentioned, the structure of most MLM companies make them impossible to sustain.
- By the end of the fifth year, 50% of MLM companies have closed up shop
- By the 10th year, only 35% are still around
Many MLM companies are nothing more than pyramid schemes that will leave most investors with little to no sales to show for their troubles. Even more will end up losing money. Take a look at the chart based on an AARP study below.
Is it a Pyramid Scheme?
There’s a pretty good two-step test to determine if your MLM is a pyramid scheme.
- Does the MLM distributor agreement require you to purchase more product than you could ever hope to sell?
- Does the MLM make its money by signing on an increasing number of distributors?
A legitimate company will make most of its money through the sales of its products. The lion’s share of those products should be sold to the end user, not distributors!
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