A multilevel marketing plan (MLM), also known as network marketing, sells goods or services through distributors or consultants. The distributors receive commissions on sales of goods and the people they recruit. The distributor's recruits become their "downline". The more people they recruit who in turn recruit others- the more money they make through commissions. MLMs are considered home-based businesses.
If you are thinking of getting involved with multilevel marketing, do your research first.
Laws Governing Network Marketing
Multilevel marketing plans are often criticized for being illegal pyramid schemes. What's the difference between a MLM and a pyramid scheme? Briefly, a MLM offers legitimate goods and services to it's customers- pyramid schemes do not. In 1979, the Federal Trade Commission (FTC) made a ruling that affected all MLMs: In re Amway Corp. (93 F.T.C. 618; full name In the Matter of Amway Corporation, Inc., et al.) The FTC ruled that Amway was not an illegal pyramid scheme but ordered Amway to cease price fixing and cease misrepresenting the apparent success achieved by the average distributor. "The FTC has brought more than 200 enforcement actions against business opportunities using the Franchise Rule since it took effect in the 1970s, and numerous cases against work-at-home and multilevel marketing companies under Section 5 of the FTC Act. Since 1995, the Commission has conducted 12 sweeps on business opportunities." Federal Trade Commission Although MLMs are legal, the FTC advises anyone thinking of signing up with a multilevel marketing organization to do their research first.
Some Well Known MLM Companies
Most women have heard of or worked for one of the following MLM companies, and a well-known business personality now owns one of them:
- Mary Kay
- Pampered Chef
Those are but a few of the top network marketing companies. As of 2009, Avon topped off a list of the most successful companies with 10.7 billion dollars. Who owns Pampered Chef: Berkshire? Hathaway, Warren Buffets company.
Is It a Legitimate MLM
Here's a checklist for making sure you aren't signing up for a pyramid scheme:
- The start up cost for a legitimate MLM should be small. If the distributor pressures a recruit to pay a large sum of money for the privilege of getting in on the opportunity, she's looking at a pyramid scheme. The promoters make all the money by recruiting-- not selling.
- If required to buy an inventory, will the company buy back the inventory should the recruit fail to make money? It should be at least 80%. Although some states require 90%.
- Make sure a viable product is being sold. It must be something that people want to buy, and it must be of high quality. Companies that make their money solely on recruiting are pyramid schemes. Stay away or get stuck holding the goods.
- Find out who the officers of the company are. Check out its products, and buy back-policy.
- Get written copies of the company's sales plan and any literature that's available.
- Make sure that the goods are actually being sold. That should be the main emphasis of the company: getting the goods to the consumer- not recruiting.
- Talk to others who have experience with the company. Their experience should be positive.
- Check with your local better business bureau, district attorney or state attorney general's office. Have there been any complaints about this company? The Direct Selling Association (DSA) is a national trade association representing in home sales companies as well as multilevel marketing businesses. A good company is going to belong to DSA.
You Can Achieve Success
Although a multilevel marketing company may be operating with the highest integrity, that doesn't necessarily mean every distributor or senior sales director is also. Separate hype from fact. An overly enthusiastic senior sales director may encourage her recruits to purchase more inventory than they can sell in a reasonable amount of time. That's because they're lining the sales director's pocket generously
An honest senior sales director will not pressure anyone to recruit other distributors if that's not what you want to do. She will not pressure anyone to buy more inventory than you can afford. She will not make grandiose claims about how much a person can realistically earn in a given time period.
Donna Scully, Senior Sales Director for Mary Kay Cosmetics in Sacramento, CA says, "slow and steady does it. Building a good business takes time and hard work." She also states that 2% of the sales force of Mary Kay earns in the superior range. Those statistics are true for any company whether it be education, medicine, law, or working at a fast food chain. Only 2% will be high achievers.
It's up to the individual. There is money to be made in legitimate multilevel marketing companies. Anyone who is willing to put in the work, and operate with integrity, can achieve at whatever level they want. If they're enthusiastic about the company and product, and can separate hype from fact, they might be the next super achiever.