Lots of people love the idea of making money while having a flexible work schedule. Get up when you want. Work when you want. And that’s what makes MLMs and other work from home opportunities so seductive. What’s an MLM, you ask? MLMs are multi-level marketing companies that sell products through direct selling. And that’s what this article is all about. But are MLMs good? By the end of this article you’ll know what they are, how they work and how to spot an MLM. Then you should be able to decide for yourself if they are worth your time.
What is an MLM and How Do They Work?
MLM stands for multi level marketing. Companies that have an MLM business model don’t hire a sales force. They rely on independent contractors called Distributor or Consultant–something like that. As a distributor or consultant you only get paid in commissions for products you sell. The other way you get paid is by recruiting people to join your team. Those are the two main ways that the company and the independent contractor make money.
MLM vs. Pyramid Scheme
You may have heard MLM and Pyramid Scheme used interchangeably. So you know how MLMs work. Now we’ll talk about how pyramid schemes work. MLMs and pyramid schemes have a few things in common such as:
Pyramid Schemes: rely on recruiting. Someone recruits you and asks you to put up a certain amount of money. Then they promise that you will make that money back and more when you recruit others in the same manner.
MLMs: To start with an MLM, you have to have a sponsor. So that sponsor will earn money off all your sales. The payment part comes in the form of buying a starter kit. In order for you to move up the ladder to earn more money, you also need to recruit. See how that works? You can see how this could be a bit confusing.
Both MLMs and pyramid schemes rely on recruiting others to join you. Pyramid schemes ask that you put up a certain amount of money with the promise that you will make that money back and more through your own recruitment efforts. MLMs also expect you to recruit. A percentage of your product sales will go to your sponsor. If you want a piece of that pie, you have to recruit as well. In the end, the organizational structure looks like a pyramid in both cases. MLMs have also been compared to affiliate marketing. If you want to read my article about that, click here.
Who is Best Suited for MLMs
It really does take a certain type of person to make money with MLMs. Just because you want to make some extra money, doesn’t mean that you can be successful working in an MLM business model.
This is all my personal opinion so take it with a grain of salt. If you’ve had any experience with MLMs, you’ll probably agree with the the list below:
- Love the products: if you have been using the products of a particular MLM for a while and really enjoy them, your enthusiasm could help you make sales.
- Outgoing people: Outgoing people tend to be very confident and can usually strike up a conversation with most anyone. Personally, I love people like this. Imagine you hanging out at the airport waiting impatiently for your flight. You’re tapping your toes and checking the time on your phone every few minutes trying to calculate how late you’re going to be on arrival. You’re waiting for the flight to be called and a passenger just starts talking to you about the inconvenience, whatever. You immediately feel good, right? Outgoing people have a way of immediately making you feel comfortable and at ease. They love to talk to people.
- People with a wide network: these people basically have unlimited resources at their disposal. And anyone who has a wide network is probably outgoing and loves certain products. This makes them excellent for this business model. Not only can they tap into their own extensive network but the networks of the people in those extended networks!
I’m not saying that anyone who doesn’t fit the above categories can’t succeed here. I’m saying that the people with the above skillset will likely be the most successful.
Why Do People Join MLMs?
Of all the MLMs I’ve looked into, women seem to make up the biggest number of distributors or consultants working for MLMs. And that’s for a very good reason. Women join MLMs for different reasons, such as:
- Love the products: If they join the company, they can get a discount on those products. Depending on how much they sell, they can even qualify for free products.
- Free products: if a distributor is really motivated to sell, she can sell enough to qualify for free products
- Building a career: if you dedicate yourself to working full-time, you can rise up in the ranks to area manager, district manager, etc.
- Travel perks: Another benefit to rising up in the ranks is that you can earn an all expense paid trip.
- Cars: Some MLMs, like Mary Kay, will even give you a car if you rise high enough in the rankings. Mary Kay once gave out pink Cadillacs. Not sure if they still do this.
For women who are trying to raise a family, MLMs can be a great way to earn money in your spare time.The flexible work schedule means that you can work around your family responsibilities.
Why Do MLMs Get Such a Bad Rap?
No business is perfect but MLMs get a bad rap for a number of reasons. Here are a few of the most common problems with MLMs:
- Shady business practices. This can be anything from bending the truth about a product or service to flat out lying to a customer.
- Poor quality products
- Poor customer service
- Bad return policy
- Misrepresentation of products
- Pushy salespeople
- Pressure to recruit
This is by no means a complete list. This is a list of the most common reasons people steer clear of MLMs.
My Personal Experience With MLMs
The reason I wanted to write this article was because I actually have had experiences with a few. While researching, I remembered that I even signed up to be a distributor at one point! So I thought it was important to mention that here. So the first experience, Amway, was the one I joined as a distributor. The other MLMs, I was a customer.
Amway: Back in the 80’s, I was introduced to Amway through my hairdresser who had agreed to host a party. There was wine and snacks and a demonstration of the products. There was a lot of pressure to buy products so I ended up buying a few. If you bought a certain amount of products, you qualified for a free gift. It all sounds great so far, right?
Then came the pitch about becoming a distributor/consultant–whatever they were called back then. The woman made it all sound so easy. Have parties and collect orders essentially. How hard is that? I liked the products and thought it would be fun to have parties with my friends and collect orders so I signed up.
Then came the cost. What I didn’t realize was that I had to BUY a kit. Not only did I have to buy a kit, I also had to buy additional items that were not included in the kit. One particular item I remember I had to buy was face cloths. I bought eight of them. These were used to clean your face after testing out the products or to apply cleansing foams, etc. After each party, I’d have to throw them in the washing machine and get them ready for the next party.
I didn’t have that many parties. I quickly realized that I was losing money faster than I was making it. How do I know this? Because I distinctly remember feeling ripped off when I had to pay the shipping fees for the products ordered at these parties. That eats into your commissions. Something I wasn’t told.
The parties dried up too. After a while, no one wanted to hear me blather on about these “great products” and please host a party so I can make some money. People could probably smell my desperation.
My sponsor lived near me. She held meetings once a month where she would go over the sales figures and we’d talk about how to promote products. When you didn’t have any sales numbers to turn in, it became abundantly clear to me that this gig was not meant for me and I dropped out within six months. Needless to say, I got stuck with the kit and the face cloths but at least I didn’t have the pressure to sell products anymore.
Cutco: With this one, I definitely felt like I was being scammed. Here’s how it happened. When I lived in the San Francisco Bay Area I was part of a community theater group. One of the actresses came in one day and started talking about this great product she was selling and she really “needed help with her pitch” and would any of us allow her to come and give a demonstration in our home?
When she got to me she swore that I wouldn’t have to buy any products. She just needed the experience to practice her sales pitch. When no one else had agreed, that should have been my clue but hindsight, right?
Cutco sells kitchen utensils and knife sets. She came in with her big trunk full of products. She set up the display and started going through her pitch. The products were beautiful, well made but VERY expensive. At the end of her pitch she said, “so which products would you like to buy?” I gently reminded her that I thought we were only helping her with her sales pitch. Long story short, we ended up buying the least expensive kit we could and we both felt scammed.
But here’s the good news. I still have that stuff! That was 30 years ago and the utensils are all still in excellent condition! I also still have the free gift which was a small serrated knife. The utensil set I bought even came with a holder I could hang on the wall. It is hung right over my stove. The handle melted a bit on one or two of them but that was our fault. I may not have been happy with the sales pitch and the experience but the products are good quality.
Shaklee: So Shaklee was huge in my town back in the 70’s. Yes, I’m dating myself. Deal with it. A friend’s mother was a distributor and loved the products. I bought the all-natural vitamins and protein powder and loved them. I loved the fact that they were made from natural ingredients. Since I was a young student at the time, I was never pressured into becoming a distributor and the woman never pressured me into buying more products. All in all a decent experience with this particular MLM.
Mary Kay: This experience was more high pressure. The woman was a friend of a friend who offered to come to my apartment to show me products. Now this woman wanted a pink Cadillac! She actually told me that. And she was certainly working hard for it. We went through all the makeup. She actually did my makeup so I could see the results then began pressuring me to buy. In the end, I think I ended up buying $80 worth of products. The products were ok but I didn’t want to have to place an order every time I ran out mascara. Once the products were gone, I went back to buying makeup at a local retail store.
As you can see, I’ve had very different experiences with MLMs and their products. I’ve been a distributor as well as a customer. My experiences have been both good and bad.
How To Spot An MLM
There are several ways to spot an MLM and some are more obvious than others. Below is my list of how to spot an MLM:
- You’re asked to attend a party where products will be demonstrated or displayed
- You’re asked if you want to make extra money and if you want to sign up
- Part of the opportunity includes recruiting other people to join your team
- The opportunity requires you to buy a starter kit
- You may also have to pay a membership fee after a free trial
- You have to meet a certain sales quota to keep your account active
- There’s no base pay. It’s strictly commission based.
- You have to sign up through a sponsor or one is appointed to you.
- A portion of your sales goes to your sponsor or team leader. I imagine that you will never see this number. You’ll receive a commission check and that’s it.
Again, this is not an exhaustive list but some of the most common ways to spot an MLM.
Do Your Homework
If you are interested in joining an MLM for whatever reason, do your homework first. Here are a few places to check out the reputation of the MLM you are considering:
BBB: bbb.org is the Better Business Bureau in the United States. Go to the BBB website and do a search on the company. You don’t really need to know where the company is located. You can find out a number of things such as:
- If the company is an MLM. The BBB will indicate in the description of the company is an MLM.
- If the company is accredited with the BBB. This means that the company has paid a fee to the BBB to maintain accreditation. They need to also meet a certain criteria as well.
- The company rating. Anything other than an A+ and 4-star rating should be checked out.
- Number of complaints. Complaints can be for a variety of reasons. You should read through the complaints to see if any of them are deal breakers for you.
- Company history. You can also find out from the company profile how long the company has been in business. If the company has been in business for years, it could be a testament to their success. But that doesn’t mean it will translate into your success.
If the BBB has no information on the company, it could be because it’s very new or it’s foreign registered. Only U.S. registered companies will be in the BBB database.
Lawsuits: check to see if the company has any lawsuits against it either past or present. Google the company name and the word lawsuit. Check for any suits from legal websites. Those are the most reliable.
Website: check out the company website. Take a look at the products and any information you can find on their policies around being a distributor. It’s always good to know as much as possible.
The BBB and lawsuits will be the bare minimum information you need. You should also check out the website to see if there’s any information about getting started as a distributor/consultant. You can also email the company and ask for information.