multi-level marketing http://www.wisebread.com/taxonomy/term/8628/all en-US Lies, Damned Lies, and Multi-Level Marketing http://www.wisebread.com/small-business/lies-damned-lies-and-multi-level-marketing <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/lies-damned-lies-and-multi-level-marketing-tom-harnish" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/lies-damned-lies-and-mult...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/lies-damned-lies-and-multi-level-marketing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000010660337XSmall.jpg" alt="Pyramid" title="Pyramid" class="imagecache imagecache-250w" width="250" height="176" /></a> </div> </div> </div> <p>Mark Twain wrote in 1909, &quot;There are three kinds of lies: lies, damned lies, and statistics.&quot; He could easily have been writing about multi-level marketing (MLM), although the schemes didn't become popular until almost 40 years later.</p> <p>Questionable statistics are used by MLM companies to hoodwink legions of would-be entrepreneurs who want to believe they can attain the lifestyle the companies promise. As a result, there are few areas outside of politics and religion where so much emotion is backed by so little reality.</p> <p>A couple of years ago I wrote a blog post titled &quot;<a href="http://undress4success.com/the-truth-about-business-opportunities/">Mary Kay, Amway and Other Scams</a>.&quot; I pointed out that home-business opportunities often sound great on the surface, but I also warned there are few MLMers who can prove they&rsquo;ve made more money than they spent.</p> <p>Minutes after the post hit the Internet, the first comment arrived, dripping with sarcasm. &quot;Pardon me...maybe you need to do more research,&quot; wrote the commenter, and to prove her point she claimed Mary Kay had been the best selling cosmetics brand for 12 years in a row.</p> <p>Lies, damn lies. A quick web search found recent industry information that showed they were the 14th largest beauty manufacturer, behind #5 Avon &mdash; another MLM company.* No doubt, someone at Mary Kay found a way to define a narrow market segment where they could claim they were #1.</p> <p>Another true believer wrote, &quot;I don&rsquo;t know how all of that pyramid stuff works and I must say I am not concerned.&quot; In other words, &quot;Don&rsquo;t confuse me with statistics.&quot;</p> <p>Wouldn&rsquo;t you think she&rsquo;d be interested to know if Mary Kay distributors make any money?</p> <p>U.S. law doesn&rsquo;t require Mary Kay, a private company, to make financial information available except for tax purposes. And despite continuing criticism, they refuse to reveal what a typical &quot;fashion consultant&quot; makes.</p> <p>However, Mark Kay <em>is</em> required to report such information in Canada, and <a href="http://www.marykay.ca/ContentPage.aspx?FileName=/home/earnings-representation.html">those numbers are revealing</a>.</p> <p>In 2009, out of almost 29,675 devotees, only 1,878 earned more&nbsp;than $100. What's more, based on <a href="http://www.ftc.gov/os/comments/businessopprule/522418-11952.pdf">company information supplied to the FTC</a> (PDF), turnover is 85% in Canada and almost 70% in the U.S.&nbsp;Not a very promising &quot;opportunity,&quot; especially when you consider that even telesales &mdash; known for unusually high turnover &mdash; has <a href="http://www.phoneworks.com/resources/benchmarks/cso_telesalessummaryfinal_12_21_05.pdf">annual turnover rates around 42%</a>&nbsp;(PDF). (The national turnover average for all non-farm jobs is just 3.3% according to the <a href="http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&amp;series_id=JTS00000000TSR">Bureau of Labor Statistics</a>.)</p> <p>Mary Kay isn't the only company prospering from offers of false hope. Avon, Amway, and Mary Kay are among the largest multi-level marketers, but there are lots of smaller companies that prey on unsuspecting people by encouraging them to buy, oops I mean sell, everything from beverages to sex toys.</p> <p>Unfortunately, probably because of the recession and layoffs, more people are falling for the schemes. According to the Direct Sales Association, in 2009 there were about <a href="http://www.dsa.org/press/press_releases/?fa=view&amp;docID=3871">16.1 million people involved</a>, an increase of 6.6% from the year before. Sales for the same period were, by they way, down 4.3%. More people making less money, in other words.</p> <p>But 16 million people can't be wrong, can they? Think again.</p> <p>Amway, with a worldwide sales force of more than three million people in 2006, made $6.4 billion. But according to a <a href="http://business.timesonline.co.uk/tol/business/industry_sectors/media/article2951266.ece">British government investigation</a>, that year only 10% of Amway distributors made more money that they spent, and over 90% sold nothing. Zip.</p> <p>MonaVie workers, distributing a fruit juice concoction at $40 a pop, don't make money either. Less than one percent qualified for commissions in 2007, and less than a tenth of 1% of the distributors made more than $100 a week according to the company's own <a href="http://www.mlmfuture.com/IncomeDisclosure.pdf">Income Disclosure Statement</a> (PDF). The company, on the other hand, made over three-quarters of a billion dollars.</p> <p>According to their Income Disclosure Policy, &quot;MonaVie&rsquo;s corporate ethics compel us to do not merely what is legally required, but rather, to conduct the absolute best business practices (sic).&quot;</p> <p>One example of their exemplary business practices is they define those in the MonaVie pyramid who don't make any money as retail customers, not failed sales recruits. And that allows them to deny they&rsquo;re a pyramid scheme.</p> <p>How? In 1979, the Federal Trade Commission (FTC) tried to draw a line between legitimate and fraudulent&nbsp;pyramids in a regulatory action against Amway.&nbsp;The baddies, they decided, are the ones that focus on creating a &quot;downline,&quot; recruiting (and making their money on start-up inventory purchases). In other words, they make money when you convince your friends, family, and total strangers to be a part of your pyramid.</p> <p>The companies that are acceptable, said the FTC, are ones that focus on selling consumer goods to retail customers.</p> <p>Unfortunately, the FTC didn't define &quot;retail.&quot; So by redefining failures as customers, MonaVie is able to skate around the regs.</p> <p>Another case involves a MLM outfit called Fortune Hi-tech Marketing (FHTM). The Montana Commissioner of Securities and Insurance issued a <a href="http://www.sao.mt.gov/legal/securities/S10_HITECH%20Cease%20and%20Desist.pdf">cease and desist order</a> (PDF) because FHTM made money selling bogus $299 &quot;licenses&quot; in a pyramid scheme, while 30% of their distributors made nothing. And a third of those who did make something made less than $93 a month <em>before costs</em>.</p> <p>FHTM settled the case for over a million dollars in restitution and penalties, but <a href="http://www.usatoday.com/money/companies/2010-10-15-multilevelmarketing14_CV_N.htm">according to </a><em><a href="http://www.usatoday.com/money/companies/2010-10-15-multilevelmarketing14_CV_N.htm">USA Today</a></em> they're&nbsp;still under investigation by the Attorneys General of Texas, Kentucky, North Dakota, North Carolina, Missouri, South Carolina, Illinois, and Florida.</p> <p>Many people who are attracted to multi-level marketing &quot;opportunities,&quot; it seems, don't have any idea what is required to run a business, or what it takes to make a profit. Or even what &quot;profit&quot; means. In fact, some don&rsquo;t care.</p> <p>As one of the Mary Kay defenders wrote in response to my blog post, &quot;&hellip;it seems that all you are doing is pulling up stupid paper reports! Not all companies are all about the paper side of it.&quot; Right, those damn statistics.</p> <p>And there's the clue to the truth about why so many people believe the lies, damned multi-level marketing lies, and their bogus statistics.</p> <p>Another commenter elaborated, &quot;Mk (sic) isn&rsquo;t about the money to me, its (sic) about encouragement, and confidence, and to never have to feel insignificant.&quot; Still another wrote, &quot;... you really need to be a 'CHICK' to understand the 'girl power' this amazing company seems to offer it&rsquo;s (sic) consultants. I guess that&rsquo;s&nbsp;the lure of MK for a lot of gals&hellip; we offer HOPE to women that might not have anything else positive in their life (sic).&quot;</p> <p>Big business for the companies, billions of dollars, actually. Hope &mdash; at a price &mdash; for their distributors, and very little else. All based on lies, damned lies, and statistics.</p> <p>*2010 Beauty Biz Top 100, <em> WWD</em> magazine, Conde Nast Publications, August 13, 2010: p21.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tom-harnish">Tom Harnish</a> of <a href="http://www.wisebread.com/small-business/lies-damned-lies-and-multi-level-marketing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/multi-level-marketing-the-future-or-folly">Multi-Level Marketing: The Future or Folly?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/netspend-the-story-of-the-visa-debit-card-we-did-not-apply-for">netSpend: The Story of the Visa Debit Card We Did Not Apply For</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-vile-craigslist-scams-to-watch-out-for">8 Vile Craigslist Scams to Watch Out For</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-used-car-salesman-reveals-dirty-tricks-and-how-to-beat-them">A Used Car Salesman Reveals Dirty Tricks (and How to Beat Them)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/carnival-of-scams-top-4-fairground-cons">Carnival Of Scams - Top 4 fairground cons</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center multi-level marketing pyramid scheme scams Thu, 09 Dec 2010 23:24:32 +0000 Tom Harnish 340579 at http://www.wisebread.com Network Marketing Parties: Opportunity or Emotional Blackmail? http://www.wisebread.com/network-marketing-parties-opportunity-or-emotional-blackmail <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/network-marketing-parties-opportunity-or-emotional-blackmail" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000009193060XSmall.jpg" alt="women&#039;s party" title="women&#039;s party" class="imagecache imagecache-250w" width="250" height="165" /></a> </div> </div> </div> <p>After my first Arbonne &ldquo;party&rdquo; last weekend, I made a list of the other product sales &ldquo;parties&rdquo; I have attended. Can you match this?</p> <ul> <li>Pampered Chef</li> <li>Princess House</li> <li>Mary Kay</li> <li>Tupperware</li> <li>Christmas Around the World</li> <li>Party-Lite</li> <li>Oriflame</li> <li>Amway</li> <li>Stampin&rsquo; Up</li> </ul> <p>As it turns out, I have been to nineteen of these things (some two or three times). I guess that makes me quite the party animal.</p> <p>&ldquo;Network marketing is the future!&rdquo; proclaimed the Arbonne representative. <strong>Network marketing</strong> and <a href="http://www.wisebread.com/multi-level-marketing-the-future-or-folly"><strong>Multi-level marketing</strong></a> are terms that can be used interchangeably. The concept is that products are sold by an individual, but a distributor network is needed to build the business. Interpersonal relationships and word of mouth are relied upon to market and sell. If I like a moisturizer from Mary Kay, the idea is, I&rsquo;ll tell my girlfriend about it. In multi-level marketing, sellers get paid for their own sales plus the sales of others whom they bring into the company. In &ldquo;direct sales,&rdquo; the agent deals directly with customers, and usually in a party atmosphere. These aren&rsquo;t new concepts &mdash; I remember my mother going to Tupperware parties in the seventies.</p> <p>In case you haven&rsquo;t ever attended one of these shindigs, here is the rundown. You receive an invitation to a party. When you arrive, there is usually a demonstration of the product(s) (often hands-on), a sales pitch, and then the check-writing begins. There is often a further pitch to host your own party or become a team member, yourself. Also included is a personal testimonial by the hostess, or presenter, about what a life-changing event it was, becoming involved with their company. Afterwards, food is served.</p> <p>In discussing this story idea with my friend, MZ, she said, &ldquo;I&rsquo;m always getting invited to those things, but I never go. Sometimes I <em>feel guilty</em>, though, so I buy something from the hostess without going to the party.&rdquo; Lisa from <a href="http://terriocraftprojects.com/">TerriO</a>, who has participated in network marketing, says &ldquo;Sometimes when my friends sell products, I <em>feel obligated</em> and sometimes, I'm interested in the products.&rdquo; To get really introspective, is this what friendship is all about? I honestly believe that if I refused these invitations, my girlfriends would pretend to understand, but they&rsquo;d really be disappointed, and perhaps a little angry, with me. It&rsquo;s not just me. My friends are educated, mature professionals, and yet they are still emotionally blackmailed into attending parties. Simply declining, politely, to host a party in my home seems to be an affront.</p> <p>There it is, the crux of party-marketing: <em>feelings</em>. Should your emotions enter into your shopping experience? At these parties, I have experienced the feeling of largesse because I could help a friend who needed additional income. Have you ever felt a sense of belonging because you joined in the buying frenzy? Some find happiness in their shopping experiences. It stands to reason, doesn&rsquo;t it, that if you are invited to a party, the invitation will come from a friend, a family member, or a co-worker. You will usually have <em>some emotional tie</em> to the hostess.</p> <p>Interestingly, in all the parties that I have attended, the only one where a few men were present was Amway (even though several of the above-listed companies do sell men&rsquo;s products). This leads me to surmise that, if network marketing <em>is</em> the future of sales &mdash; it is the future of sales for <em>women</em>, who respond more favorably to personalized, emotionalized selling. Fine, label me a sexist, but the statistics support my theory. According to <a href="http://www.dsa.org/">Direct Sales Association</a>, 87.9% of sellers are women. 32.8% of items sold are skin care care, jewelry and clothing/accessories. 25.6% of sales are in the area of home care products.</p> <p>Are the parties <em>fun</em>? Sometimes, yes. Kelley, who used to sell Pampered Chef products, explained: &ldquo;Our team worked hard to create parties that were entertaining and educational &mdash; we even called ourselves <em>edutainers</em>!&rdquo;</p> <p>The latest pitch had a new twist: &ldquo;Make up your Furlough Friday lost income!&rdquo; I think it&rsquo;s admirable if a person wants to earn extra income, as many of my friends have, by taking on another job. However, you should recognize the fact that you are not responsible for helping them earn their &ldquo;dream house&rdquo; or &ldquo;a new car.&rdquo; I have found myself empathizing with the hostess&rsquo; desire to home-school her children, or to help her kids with college. As a savvy Wise Bread reader, though, you should understand that the products you are purchasing at a home party may be available elsewhere for much less.</p> <p>A tactic I do not care for is being invited to a party, only to find out it&rsquo;s a sales pitch. If they are not straightforward about the purpose of the gathering, that doesn&rsquo;t speak well for the product or the company. Why should I have to be tricked into buying something?</p> <p>A bad experience, in response to one of my queries, came from Kathleen of <a href="http://yourclientconnection.com/">Client Connections</a>, who had this to say:</p> <blockquote><p>I&rsquo;ve had both good and bad experiences with network marketing. Bad ones include: Being invited to a &ldquo;business card exchange&rdquo; that turned out to be a one-hour pitch for joining the MLM company, either as a customer or distributor, and being invited for &ldquo;coffee and conversation&rdquo; only to discover that was a euphemism for &ldquo;listen to my pitch about my MLM.</p> </blockquote> <p>Knowing all of this, what if you receive an invitation to a party? Go, if you want, but be ready. Here are my thoughts about surviving the sales &ldquo;party&rdquo; experience.</p> <p>1. There is nothing wrong with saying, &ldquo;No, thank you&rdquo; or &ldquo;I&rsquo;ll have to think about it.&rdquo;</p> <p>2. Find out if the product is guaranteed. If you want your money back, how do you get it (i.e., will the presenter/hostess handle it, or do you have to call a national customer service hotline)?</p> <p>3. Really consider whether or not the product is a good value. By &ldquo;good value,&rdquo; I mean, would you buy it if it wasn't being sold by your friend?</p> <p>4. A pitch I&rsquo;ve run across many times is: &ldquo;If this party has receipts of $300 or more, your hostess will get this bonus gift.&rdquo; This is a ploy for you to have sympathy for your hostess, who may be gazing longingly at that spa set.</p> <p>5. Beware this statement: &ldquo;If you spent another $xx, you can get free shipping.&quot; It's another ploy for you to spend just a little bit more. Try buddying up and sharing an order with someone else at the party.</p> <p>6. Alcohol is frequently served and it does loosen your inhibitions. You could be in for a buyer&rsquo;s remorse hangover so if you have a drink, be extra careful about spending.</p> <p>As a veteran marketing party animal, my advice is that there is nothing inherently bad about buying products this way. Just be aware of the tactics that are designed to induce you to spend more. Keep your emotions in check, and think about whether you really need the product or can get it elsewhere, for less.</p> <p>To find out more about network marketing, check out Nora's thorough explanation in <a href="http://www.wisebread.com/multi-level-marketing-the-future-or-folly">Multi-Level Marekting:&nbsp;The Future or Folly?</a></p> <p><em>For the marketing party veterans among you, if you have favorite products that are available only through network marketing companies, or are of superior quality through them, please share them with all of us in the comment section, and tell us why you like them!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/marla-walters">Marla Walters</a> of <a href="http://www.wisebread.com/network-marketing-parties-opportunity-or-emotional-blackmail">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/multi-level-marketing-the-future-or-folly">Multi-Level Marketing: The Future or Folly?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/who-cares-if-theres-a-recession-i-just-started-a-business">Who Cares if there&#039;s a Recession? I just started a business</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/march-roundup">March Roundup</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/looking-on-the-bright-side-how-to-find-a-silver-lining-in-the-current-financial-crisis">Looking On The Bright Side: How to Find A Silver Lining In The Current Financial Crisis</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-companies-with-the-best-employee-discounts">8 Companies With the Best Employee Discounts</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Shopping direct sales parties Making Extra Cash multi-level marketing network marketing Tue, 03 Nov 2009 16:00:07 +0000 Marla Walters 3782 at http://www.wisebread.com Multi-Level Marketing: The Future or Folly? http://www.wisebread.com/multi-level-marketing-the-future-or-folly <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/multi-level-marketing-the-future-or-folly" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/multi level marketing.JPG" alt="pyramid?" title="pyramid?" class="imagecache imagecache-250w" width="250" height="333" /></a> </div> </div> </div> <p class="MsoPlainText"><span>Multi Level Marketing (MLM). Also known as Network Marketing or Direct Marketing, and even commonly (incorrectly) referred to as Pyramid Schemes, this type of business entity either has enthusiastic fans or raging critics. Today I will attempt to define exactly what multi-level marketing is, debunk some common myths, and arm you with some warning signs of the &quot;bad seeds&quot; of the industry. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>Fundamentally, MLM can be a viable form of doing business. <strong>Let's compare the MLM structure to that of a conventional business.</strong> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>Conventional Business</span></h2> <h3><strong><span>Structure</span></strong></h3> <p class="MsoPlainText"><span>A standard corporate business structure has a President or CEO at the top, who inevitably gets paid the most of anybody in the company, and who calls all the shots. Below the CEO you have VPs, Assistant VPs, departmental heads, and sub-departmental heads. Each of the key players has assistants and teams to help them do their jobs. And the further the employees are removed from the CEO in terms of responsibility or title, the less they are paid. At the bottom rungs are the many support staff, who are the &quot;worker bees&quot; of the organization, and are typically paid the least. </span></p> <p class="MsoPlainText"><span>In fact, you could often draw up a corporate employment structure to look like a pyramid. </span></p> <p><span> </span></p> <h3><strong><span>Marketing</span></strong></h3> <p class="MsoPlainText"><span>For a conventional business to market their product, they have extensive sales and marketing departments and budgets. They advertise to their market using strategically placed ads on tv, in magazines and newspapers, billboards, movie theatres, and on it goes. </span></p> <p class="MsoPlainText"><span>If they are lucky, their product will catch fire with the right market and word of mouth will do the rest of the work. But they still have to maintain a presence in the advertising world in order to keep new customers walking in the door. </span></p> <p class="MsoPlainText"><span>And of course, the cost of all this (often expensive) advertising is ultimately passed on to the customer through the cost of the product. </span></p> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>Compensation</span></strong></h3> <p class="MsoPlainText"><span>Most corporate employees have standard salaries, plus occasional profit-sharing incentives depending on the company. </span></p> <p class="MsoPlainText"><span>The only employees with variable income might be the sales staff, who are actively pushing the company's products and who can receive commissions for sales they make. All of the salaries and commissions are of course factored into the cost of the product.</span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>MLM</span></h2> <h3><strong><span>Structure</span></strong></h3> <p class="MsoPlainText"><span>Although many MLMs have a corporate executive staff similar to the structure above, there is another structure entirely designed to market and distribute the products in lieu of advertising and sales departments. </span></p> <p class="MsoPlainText"><span>A friend, colleague, or new acquaintance tells you about a business they are involved in that sells &quot;ABC Widgets&quot;. They identify that they are a distributor of the product, and if you become interested, you yourself can become a retail customer or distributor. Being a distributor entitles you to become the CEO of your own distribution network. You can distribute to one person, three, or a million depending on your network and the effort you put into it. Your customers can in turn choose to be just regular retail customers, or if they like what they see, they too can become distributors just like you. </span></p> <p class="MsoPlainText"><span>As CEO of your distribution network, your responsibilities are threefold:</span></p> <ul> <li><span>sell the product</span></li> <li><span>recruit new distributors</span></li> <li><span>develop and assist your distribution organization</span></li> </ul> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>Marketing</span></strong></h3> <p class="MsoPlainText"><span>Because the fundamentals of MLMs are based on word of mouth, there is rarely much if any advertising budget required. There is also no sales staff on the payroll, since the distributors are in effect the sales department. </span></p> <p><span> </span></p> <h3><strong><span>Compensation</span></strong></h3> <p class="MsoPlainText"><span>The distributor's compensation depends entirely on the organization they build. A legitimate MLM company will pay the distributor in three basic ways:</span></p> <ul> <li><span>Commission on products you sell to your retail customers and buy yourself</span></li> <li><span>Commission on products your distributor sells to their own customers</span></li> <li><span>Commission on products they sell to their distributors, and so on down the line up to five to seven levels down from you. (Note, in order for a legitimate MLM to be financially viable, your compensation has to stop after a certain number of levels down from you). </span></li> </ul> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>And similar to conventional business structure and sales departments, bonuses can become payable to sales staff/distributors who meet and exceed certain benchmarks. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>The compensation structure of MLMs gets more complicated with achievement levels, bonus structures, and sometimes pricing points (eg: retail and wholesale), all of which vary from company to company. Becoming familiar with the structure can be daunting, and the shrouds of confusion can cause many people to be sceptical. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>WHY MLMs FUNDAMENTALLY WORK</span></h2> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>Sales Pitch Bunker</span></strong></h3> <p class="MsoPlainText"><span>These days we are bombarded with advertising for anything and everything. Everywhere we look, everything we read, even movies we watch and <a target="_blank" href="/stop-calling-me-how-to-avoid-telemarketers">telephone calls we receive</a>, are all sales pitches for one product or another service. </span></p> <p class="MsoPlainText"><span>As a society we have effectively become desensitized to this barrage of sales pitches, and have retreated into our safe little bunkers against sales. We are sceptical about a new miracle formula or revolutionary this-that-or-the-other that we see on tv. And so we should be too. </span></p> <p class="MsoPlainText"><span>But if a friend tells us to eat at this restaurant or see that movie, we'll probably take their advice and race out to see it. We assume they are telling us out of genuine interest, and since we are hearing it from a real live person and not a squawk box, we listen. </span></p> <p class="MsoPlainText"><span>Some conventional companies have tuned into this, and have developed referral programs to provide consumers with incentive (in the form of rebates, discounts, or cash) to refer friends and family to their product or service. So although we still trust that our friends are telling us about the product out of genuine interest and because they are a happy customer themselves, they are also now being compensated for it. </span></p> <p class="MsoPlainText"><span>MLMs are not fundamentally different from this. They tap into the power of direct marketing, word of mouth referrals, and people using their networks (hence the term &quot;network marketing&quot;). </span></p> <p class="MsoPlainText"><span> </span></p> <p><span> </span></p> <h3><strong><span>Cost-Effective Sales</span></strong></h3> <p class="MsoPlainText"><span>Some critics of MLMs will suggest that the compensation structures of MLMs aren't viable for the business. How can an MLM afford to pay a commission to six or seven different people for one product sale?</span></p> <p class="MsoPlainText"><span>Conventional businesses build the following (among other things) into the cost of products:</span></p> <ul> <li><span>Sales department salaries and commissions</span></li> <li><span>Advertising costs</span></li> <li><span>Retail property overhead (this is huge)</span></li> </ul> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>MLMs don't have any of the above costs, and so can instead channel the same money towards their own distribution force commissions - hence the ability to pay higher commissions and to multiple people.</span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>In fact, some business gurus would go so far as to say that the wave of the future is in MLM marketing structures. Properly structured, legal MLMs that is. With a history of illegal operations and shady companies in the industry though, it is hard to pick out the good ones from the bevy of schlock out there. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>COMMON MLM MYTHS</span></h2> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>MLMs are pyramid schemes</span></strong></h3> <p class="MsoPlainText"><span>In fact, the conventional corporate business structure smacks more of a pyramid scheme than a legitimate MLM does. With the lone CEO at the top being paid the most and the &quot;worker bees&quot; at the bottom stuck on their ladder rung with no hope of exceeding the CEO's income or stature, you have a pyramid. </span></p> <p class="MsoPlainText"><span>A true MLM distributor's income is entirely dependant on their efforts expended. You could be a distributor and sign me on to become a distributor myself. Shortly thereafter you may fall out of interest with the company or family obligations could get in the way of your business efforts. I on the other hand, might choose to go gangbusters with it. Although you are technically above me since you brought me on, I can exceed your income and stature within the company by building a stronger network of my own. You will of course be paid a percentage of what I make, but ultimately I will make more money than you for my efforts.</span></p> <p class="MsoPlainText"><span>In fact, some MLMs will build in a protective measure against the &quot;slackers&quot; who recruit winning distributors since the slackers are probably not contributing to the success of their winning distributor's business. So the company will cap off the income the slacker can make, or sometimes cut them out of the loop entirely. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span><em>The difference between a pyramid scheme and an MLM is product.</em> A legitimate MLM has a viable line of products to sell, with real and ongoing customers. A pyramid often won't have a real product, or one that is marketable. Or there may be a product, but it is a one-time purchase, is not marketable, or is unreasonably expensive. </span></p> <p class="MsoPlainText"><span> </span></p> <p><span> </span></p> <h3><span><strong>MLMs are illegal</strong> </span></h3> <p class="MsoPlainText"><span>MLMs are in fact not illegal. Pyramid structures however, are illegal. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>MLMs are Get Rich Quick Schemes</span></strong></h3> <p class="MsoPlainText"><span>It is hard work, and a full-time job if you want to get rich. You are not only servicing your own customers, managing sales and inventory, but recruiting new distributors, and training and assisting your distribution network. You are effectively your own CEO, and unless you personally hire a support staff to help you (which many successful distributors will do), you are wearing many hats. </span></p> <p class="MsoPlainText"><span>The people you see in MLMs who have made huge amounts of money and are &quot;living the life&quot; on beaches around the world have invested years of hard work to get where they are, and continue to work in order to reap the benefits. </span></p> <p class="MsoPlainText"><span> </span></p> <p><span> </span></p> <h3><strong><span>MLMs aren't viable due to Market Saturation</span></strong></h3> <p class="MsoPlainText"><span>True - if everybody in the market is a customer or distributor, then there's nobody left to recruit and the people who were the last to buy in are duped. But show me a company that has total market saturation. Even (non MLM) corporate juggernauts manage to keep their businesses viable by continuing to develop products, change lines, and reinvent themselves. A legitimate MLM should also be doing the same. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>SIGNS YOU NEED TO RUN AWAY</span></h2> <p class="MsoPlainText"><span>It's a big bad world of shady or illegal companies out there, so if you are being recruited (even if it is a friend or family member - they may not understand what they're involved in), you should do some due diligence before jumping in with both feet. </span></p> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>You don't really know what the product or service is.</span></strong></h3> <p class="MsoPlainText"><span>If you can't define exactly what the product or service is, and who the market is, then it is likely that most of the money is made through recruiting which makes it a pyramid scheme and henceforth illegal in many part of the world. <em>Without something to sell, there really is no viable business.</em> </span></p> <p class="MsoPlainText"><span> </span></p> <h3><span><strong>You are promised amazing riches with little to no effort.</strong> </span></h3> <p class="MsoPlainText"><span>Nothing in life is free, so beware of such enticements. Even legitimate MLMs may talk about the lavish lifestyle it affords in their recruitment process, but after a little digging you should find that there will be work involved. </span></p> <p><span> </span></p> <h3><span><strong>You receive commissions just for recruiting new members.</strong> </span></h3> <p class="MsoPlainText"><span>Watch out! No money should be made by either the company or distributors for signing up new members. Read below for more on this. </span></p> <p><span> </span></p> <h3><span><strong>You have to pay a significant amount of money to just become a distributor or member.</strong> </span></h3> <p class="MsoPlainText"><span>The fee to become a distributor should only cover the company's administrative expenses in signing you up, the welcome kit, and any marketing materials or supplies you receive. </span></p> <p class="MsoPlainText"><span>If you are forced to pay huge fees or buy massive product packages just to get involved or learn more about the company, take it as a warning sign. </span></p> <p class="MsoPlainText"><span>Now, some legitimate companies have extensive product lines and encourage their distributors to buy bundle packages of these products themselves, but it shouldn't be mandatory. The best sales people and distributors will be enthusiastic users themselves, not users out of necessity. </span></p> <p><span> </span></p> <h3><span><strong>They have no inventory buy-back policy.</strong> </span></h3> <p class="MsoPlainText"><span>If you are required to warehouse your own inventory, a legitimate company should be willing to buy back at least a substantial percentage of your inventory if you can't sell it or choose to get out of the business. Better yet - look for a company that doesn't require you to carry inventory at all by instead using direct sales. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span> </span></p> <h2><span>FOOD FOR THOUGHT</span></h2> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>What is drawing you to the MLM in question?</span></strong></h3> <p class="MsoPlainText"><span>Are the products truly revolutionary? Or priced well? Or high quality enough to warrant buying them through this system? Or are you more enticed by promises of lavish lifestyles of rich and fame and working from your beach villa? </span></p> <p class="MsoPlainText"><span> </span></p> <h3><strong><span>Take off the Rose-Coloured Glasses and See Through the Sales Pitches</span></strong></h3> <p class="MsoPlainText"><span>If you are being actively recruited (even by a legitimate MLM), you will inevitably hear an argument like this:</span></p> <p class="MsoPlainText"><em><span>&quot;If you recruit six distributors, each of whom, in turn, recruit six others, and carry the process through nine steps, here is what your organization will look like&quot;:</span></em></p> <p class="MsoPlainText"><span><span> </span>LEVEL<span> </span>MEMBERS</span></p> <p class="MsoPlainText"><span><span> </span>1<span> </span>6</span></p> <p class="MsoPlainText"><span><span> </span>2<span> </span>36</span></p> <p class="MsoPlainText"><span><span> </span>3<span> </span>216</span></p> <p class="MsoPlainText"><span><span> </span>4<span> </span>1,296</span></p> <p class="MsoPlainText"><span><span> </span>5<span> </span>7,776</span></p> <p class="MsoPlainText"><span><span> </span>6<span> </span>46,656</span></p> <p class="MsoPlainText"><span><span> </span>7<span> </span>279,936</span></p> <p class="MsoPlainText"><span><span> </span>8<span> </span><span> </span>1,679,616</span></p> <p class="MsoPlainText"><span><span> </span>9<span> </span>10,077,696</span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>This diagram above is absolutely true, and if it worked this way, you'd be a superstar. The reality though, is that your six new distributors will all be different people. Some will go gangbusters with the business and recruit more than six people, while others won't do a thing with it. </span></p> <p class="MsoPlainText"><span>Another reality is that recruiting even six members can be difficult. With so many negative stigmas around MLMs and common myths and associations with pyramid schemes, anybody actively recruiting for an MLM has their work cut out for them. That is why so many MLMs have personal development seminars and regular pep talks - to keep the interest level high and skin thick.</span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>It's a tough job to work in an MLM, but the rewards for those who choose the right company and apply the right skills and techniques with a huge dose of perseverance can be big. </span></p> <p class="MsoPlainText"><span> </span></p> <p class="MsoPlainText"><span>The FTC has some great tips on evaluating an MLM opportunity <a target="_blank" href="http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv12.shtm">here</a>. </span></p> <p class="MsoPlainText"><span><br /> </span></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nora-dunn">Nora Dunn</a> of <a href="http://www.wisebread.com/multi-level-marketing-the-future-or-folly">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. 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