The MLM Marketing Trap
We've all come into contact with an MLM, or multi-level marketing company and, in many cases, you may have purchased goods from an MLM agent or distributor. In short, MLM or multi-level marketing is a form of direct sales where a person can derive an income by selling products directly from a company to consumers.
Anyone can join an MLM, however, it's important to understand how they work and what you need to in order to succeed.
What Is An MLM?
The modern day MLM, meaning multi-level marketing[i] is basically a sales strategy where a company recruits distributors to sell their products directly to consumers. The distributor is paid a commission which is usually a percentage of the sales they achieve. In addition to earning a percentage of direct sales, a distributor can also earn additional percentages by recruiting additional distributors as part of their team.
Over the years, MLMs have been known under many different names. The most common one is network marketing, but it has also gone by the titles of; party plan, person to person sales, direct sales, independent sales business. One of the more unflattering terms is the pyramid scheme.
So, what is network marketing, in short, network marketing is also a term that is often connected to MLMs and although network marketing is described as direct sales by independent representatives who usually work from home, it is practically the same thing as an MLM.
The History Behind Network Marketing
It’s hard to pinpoint the exact moment in history when network marketing first started as some form of this sales method has been around for as long as humans have been selling or bartering. However, MLMs as we know them today are somewhat more recent.
Let’s take a brief tour[ii] through the inception of the modern-day network marketing strategy:
1886 – The California Perfume Company, which later changed its name to Avon, claims to be the first company to sell under the MLM business plan.
1923 – Kleeneze is reported to be the first UK company to be registered as a network marketing company.
1930s – Wachters, a group selling sea vegetable supplements are believed by many to be the actual first company to operate as an MLM scheme. Around the same time the California Vitamin Company also entered the market under the name of Nutrilite. Nutrilite is said to be the first company to pay a fee to those who sold their products.
1972 – Amway, takes over Nutrilite to become one of the leading MLMs in the world.
1979 – Amway becomes famous for winning a case that deems it a legitimate business and not a pyramid scheme.
1980 – Network marketing companies hit their peak with many women being encourage to re-join the workforce by starting their own business while working from home.
Today – Thanks to the internet and social media, MLMs are more popular than ever as distributors can reach a wider audience without having to pound the pavement or book endless parties. Around 42% of distributors have indicated that most of their sales have been achieved via their various social media channels.
MLM Vs Pyramid Schemes
We’ve discussed the basics of MLMs, and although they are a legitimate way to generate an income, they are frequently associated with pyramid schemes. However, in most countries, pyramid schemes are illegal.
The similarities between and MLM and pyramid scheme[iii] are that they both generate income by recruiting consultants, agents or distributors. The agents in the top tiers of the pyramid usually have a decent income as they all attract a percentage of the agents they have recruited and who continue to recruit more agents down the line.
Unfortunately, this is where the similarities between an MLM and a pyramid scheme end. At the very least an MLM involves selling products or a collection of products. Pyramid schemes, on the other hand, seldom offer anything more than an opportunity to “make money.” In many cases, the idea is to sell a business opportunity but that opportunity involves recruiting more and more people to buy into the scheme. Quite often, the participants are left with little or nothing to show for their efforts except for an empty wallet.
Popular MLMs In The UK
The prospect of owning and operating your own business is something many people aspire to and MLMs have made this possible for thousands of people worldwide. The UK is home to many popular MLMs with the most popular ones being[iv]:
- Avon Cosmetics – Famous for selling cosmetics, perfumes, accessories and personal hygiene products.
- FM Cosmetics – Offering perfume, makeup & eco-friendly cleaning products for the home.
- Herbalife – weight loss & supplement programs
- Utility Warehouse – Provides services such as electricity, telecommunications, etc all in one package.
- Forever Living – A range of health-related products and supplements many of which use aloe vera as their base.
- Oriflame – Beauty and personal care products.
- Body Shop At Home – Full range of beauty and personal care products for the entire family.
- Juice Plus – Fruit & vegetable-based supplements for healthier living.
The Truth Behind MLMs – Why Are They Dangerous?
What does MLM mean? Is it a unique business opportunity or a scam? In all fairness, it’s actually a bit of both. The opportunity to make money in an MLM is there, but the real money is usually only available to those in the top tiers and it takes a considerable amount of time, effort and often money to get there.
The problems with MLMs are that agents are offered a business opportunity. Some MLMs go as far as to describe their agents as independent business operators. The trouble is, that the agents are anything but independent. In many cases, the agent has no control over the product and they must follow a specific plan. There is little or no freedom to truly operate as an independent operator.
MLMs often target single mothers, women who have not been in the workforce for many years and generally people facing financial difficulty. They do this with the promise of working your own hours and deciding “how much” you want to earn. You are promised to be part of a team, may be offered a mentor and the ever-dangling prospect of being an independent business owner. In reality, you’re on your own. You must follow the MLMs business plan to the letter and if you don’t reach a particular sales target, you will be told how “such-and-such” did that in his/her first month or you’ll be threatened to be kicked out of the program.
Some MLMs allow you to sign up for free and you can basically start selling the products as soon as you register. You don’t actually get paid a commission but instead you receive a discount on the products you order but you sell them to your customers at the full or catalogue price. This sounds reasonable enough until you realize that the discounts only apply to sales of a certain amount. If you don’t sell enough to your customers, you may end up purchasing products you don’t need just to get your sales figures up. That will pretty much take away the percentage you should have made from the discounts.
Other MLMs will force you to purchase a “starter pack” of their most popular products as well as catalogues, brochures and other paraphernalia. These packs often cost hundreds of pounds and it could be months before you recuperate this hefty starting expense. This still may work but keep in mind that if you live were signed up by a higher tiered agent in your area, chances are the same agent has also hired many more representatives just like you and this over saturation will make it impossible for out to operate competitively.
Can You Make Money From It?
It is possible to make money from an MLM[v], but don’t expect to be able to quit your day job. In the beginning sales will be slow and it is highly possible you won’t make any money at all. In fact, it has been reported that 50% of MLM agents will quit within the first year and at least 90% will give this scheme the boot within 5 years. Those that go the distance and last longer than 10 years make up less than 5% of those who sign up for MLMs.
In terms of generating an income, only 0.05% will make an income that could be considered life changing. The rest will make pennies and some will lose money but only after they’ve forked out a considerable amount on products and programs that promise much but deliver very little.
If you are determined to make a go of signing up for an MLM, choose one where you can put your own personal stamp on the program and this includes creating your own marketing strategy within the MLM and using personalized materials with your own colour graphics, preferably featuring your face so your customers will identify the MLM directly with you, a real person.
Before You Sign On The Dotted Line
MLMs are here to stay and chances are, you will be offered a “unique” business opportunity from a friend or relative who has already signed up. They’ll invite you to a seminar, hand you piles of information on how it works and basically do everything they can to sign you up. Don’t rush into anything without reading the fine print. Do your own research, check reviews and if it sounds too good to be true, most likely it is.
Of course, not all MLMs are bad and if the one you are looking at offers products you love, you may not make any money, but with enough sales you can at least get the products you love at discounted prices.
Sources
[i] https://www.investopedia.com/terms/m/multi-level-marketing.asp
[ii] https://www.prbmp.com/news/blog/the-history-and-evolution-of-network-marketing/
[iii] https://www.thebalancesmb.com/is-it-multilevel-marketing-or-a-pyramid-scheme-2947159
[iv] https://moneysavingcentral.co.uk/the-top-20-uk-based-mlm-companies-to-make-extra-money
[v] https://www.thebalancesmb.com/the-likelihood-of-mlm-success-1794500