MLM - Real Opportunity or
Ponzi Scheme?
Too Many Network Marketing Opportunities Fall Short of Their Promises.
No discussion of interim income or part-time employment would be complete without a discussion of multi-level marketing (MLM) or Network Marketing, as this form of distribution has come to be known. It is frequently over-hyped, definitely misunderstood, often maligned and certainly controversial. Countless thousands of people have gotten “burned” by an experience they were lured into with the promise of huge, easy commissions. Promises of “no selling, just show the product” and “just tell the story” reflect the naivete of often otherwise intelligent people who buy into a business based on wishful thinking. If ever there was an appropriate place to apply the “caveat emptor” (buyer beware) warning, MLM marketing plans are prime candidates. Now, that being said, let’s be fair. Some of these programs will work . . . but only if you’re willing to work them and work smart at them! And need we mention that sales skills are a large part of the process.
Real Opportunities vs. Ponzi Schemes
Let’s be clear about one thing. There are legitimate MLM opportunities with viable business models that will give you reasonable interim income, and eventually even significant income streams. Being able to start a new business, selling a proven product, without having to sign a long-term lease, buy a lot of equipment or commit to thousands of dollars worth of inventory is extremely appealing.
But there are also fly-by-night schemes that sound good but are really little more than patched-together Ponzi schemes. Before you buy into any MLM business you should first satisfy yourself that the company is solid, the distributors operate legitimately, selling quality products to repeat buyers (not just recruiting to earn “bonuses”) and that they really operate their franchise like a business. While it may be appealing to be “in on the ground floor,” you may be signing up for a lot of work with an unknown product that never gets off the ground!
Analyze the Compensation Plan.
Pay particular attention to the “marketing plan,” an MLM euphemism for commission schedule. As you analyze the compensation structure, pay particular attention to the “qualifying” levels and subtleties that impact it. “Binary” plans (and hybrid versions of them) for example, can be particularly tricky and some would say most are skewed toward house profits rather than distributor success.
Who Will You Be Working With?
How smart and successful are the people in your “upline?” Do they provide a system for generating leads? (And we don't mean getting our your address book to browbeat your friends and relatives!) What is the "sales process" for building an organization? What kind of literature, sales aids and training does the company provide? Are they reasonably priced? What kind of commitment are you getting from your upline? You will need strong upline support to create any sort of immediate income stream. And your ability to train and develop the people you recruit will be a major factor in your long-term growth.
Is the Product Consumable?
Of primary importance is the MLM product you will be selling. Is it a “consumable” that lends itself to repeat usage?
- Nutritional, cosmetic or cleaning products are a good example that benefit from customer satisfaction and loyalty, and you may be able to generate interim income quickly with a number of relatively small sales.
- One-shot sales of expensive hardware items do not normally lend themselves to a network marketing approach or, for that matter, to interim income. They have a longer sales cycle, and are challenging if there are any after-the-sale customer service requirements.
- Services such as legal insurance may provide excellent opportunities for you to keep yourself in front of business owners and great benefits for them as clients. But the service can be of questionable value to unsophisticated buyers and typically requires more customer care than nutritionals or cosmetics, etc.
Repeat Business is One of The Factors in MLM Success.
The retention factor is the key. Unsophisticated buyers (who don’t use the product repeatedly) are prone to losing interest in continuing with the expense.
In other words, don’t just take the MLM “pitch” at face value. Do your due diligence before you buy into any program. What is the market for the product and how do you plan to access it? What kind of help will you get? Since most products distributed this way are not in the discount category, does the quality justify the retail price? Above all, are you and the product compatible?
If you have the luxury of time, we suggest you become a customer first, using as many of the products as possible to satisfy yourself that the value is there for the price. And, talk to other users . . . not just the people in your prospective upline. Follow up on testimonials and check out the products’ reputations as well as the company’s. And, above all, validate the marketing “system” and tools you will have access to.
Commissions and Overrides are Legitimate Forms of Compensation.
The concept of multiple-level commissions on products is standard operating procedure in much of the commercial world. There are salesmen, sales managers, district managers, distributors, manufacturer’s representatives and a host of other titles that operate within a distribution chain, each with some level of commission, markup or other form of compensation based on volume to provide incentive. There are also many direct sales companies that operate either door-to-door, by mail order (in the broadest sense of the term) or through inquiries (from lead-generating media) to reach individual consumers. The amount of the commission and overrides typically increases with the difficulty in moving products.
Low Cost of Entry to MLM Can Be Deceiving.
The primary difference in a network marketing organization is the nature of distributor recruitment and the lack of qualifying experience to become one. The “business model” offered is often little more than a cleverly-disguised template for pestering friends and family members to buy products or become “downline” distributors. The alternative is to “buy” leads and spend hours cold-calling strangers on the telephone.
This is not a sustainable business model for most people, especially executives or professionals. If you’re told that you “don’t have to sell,” beware.
Can You Build a Profitable Downline Without Recruiting Friends & Relatives?
Building an MLM “downline” is usually as important as repeat sales of a product. And, in fact, it is the real basis for most of the programs you are likely to encounter. One question to ask yourself is whether or not you can build an organization without involving your friends and relatives. Just because they love you doesn't mean they will (or even can) sell for you! Quality, ambition and commitment are more important than friendship.If you’ve done your homework and the opportunity you are looking at passes the smell test on all counts, you might want to make a deal with yourself not to approach family or friends until you have sold, say $3,000 of products and recruited at least three people who are each well on their way to success.
Management Skills Are Required . . . But, Leadership is Most Important.
The reality is that somebody has to sell product and, unless you are a gifted con artist, you won’t be able to ask friends and relatives to do what you are not willing or able to do. The MLM business is only partly about management. It’s mostly about leadership, training and motivating. And if you can’t see building a business without leaning on your friends & family, the odds are against you making it in any MLM business.
Think of it as a retail business. The big difference is that you’re building an organization without a physical store to attract people. And attracting people who are pre-disposed to your product or your MLM way of doing business is a vital key to your success. Before you succumb to any “get-rich-quick” MLM scheme, be sure to read Ann Sieg’s article, “The Seven Great Lies of Network Marketing.”
The Key to Success is Getting Interested, Motivated People to Call You!
Once you feel you’ve looked at all the pros and cons of the network marketing world and you’ve thoroughly investigated a company you want to represent, you will want to approach the opportunity like you would any legitimate business venture. Set your goals, build your business plan and allow for legitimate expenses . . . Including a marketing budget.
If you do your homework, treat your MLM enterprise like a real business and are comfortable with the products, you can enjoy considerable success. Just don’t fool yourself into believing it’s an easy, get-rich-quick solution to your income needs.
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