Friday, December 3, 2010

Think Three Times Before Going into Multilevel Marketing (MLM)

A client asked me, "Should I go into a multilevel marketing business?" (They're also known as MLM or network marketing.)

MLMs are businesses in which you try to make most of your income not by selling product but by recruiting others to sell product.

I had known little about MLM except that I knew two people who tried it and neither made money. One ended up with a lot of water filters and the other guy a garage full of laundry products.

So I did some reading about MLMs. In an era gone by, when many people lived rurally and few stores served them, MLMs had some viability. Indeed, Avon, Electrolux, and Tupperware started as MLMs. But today, with value-priced retailers of nearly any imaginable product even in rural areas (e.g., Wal-Mart) and the Internet serving nearly everyone, I believe MLMs are a bad business to get into. One major reason: If a product is worth selling, it will be available online or in stores--no need for an expensive, multil-level distribution network.

Indeed, the Wikipedia profile of multilevel marketing includes these reports on income earned in multilevel marketing:
  • The London Times reports that a British government investigation revealed that just 10% of Amway's British agents made any profit.
  • Newsweek reported that, based on Mona Vie's ($40 a bottle juice) own income disclosure statement "fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week."
  • USA Today reported that "The Direct Selling Association (an advocate for the industry) says the median annual income for those in direct sales (MLM) is $2,400."
The Federal Trade Commission among others warns than many MLMs are little more than pyramid schemes, in which the goal is not mainly to sell product (like high-priced juice, vitamins, skin cream, etc), but to convince friends and neighbors to sign up to sell those products, which generates money for the recruiter. Too often, the main result is friends and relatives who resent you because of your sales pressure and/or because they ended up not making a living but losing money.

I certainly understand why, with today's high un- and underemployment rate, MLM appeals. After all, President Obama promised that if the taxpayers coughed up the $1 trillion in attempted stimulus spending, the unemployment rate would decline from the already high 8%. Instead it has leapt to 9.8%, and the underemployment rate is twice that.

Nevertheless, in my opinion, for almost anyone, there are wiser approaches to self-employment than a MLM scheme. If you're looking for a structured approach to self-employment, I suggest you forgo both MLMs and franchises, and instead, scout around for a successful simple business (e.g., a gourmet sandwich truck), and hire its owner to coach you in starting one.


Serge said...

I am skeptical about MLM too, but I think those who want to try it at no cost should check one of the sites that gives cash back (like when somebody shops through their link and/or somebody's referal shops through their links.

I remember Amway was boasting how people can get cash back shopping online through their website. That's oldnews now. There are dozen of sites offering cash back to hundreds of online stores, and a good number of those sites also offer refferal cash back. (Most of them can be found at

So if somebody has talent for making people shop at certain sites and/or for certain products, they don’t need any upfront costs or cult-like membership.

Marty Nemko said...

The crumbs are just that, I believe. Your time is very valuable. You must choose the activities that yield the most money, personal rewards to you, and improvements to the world.

Jason said...

Let's call a spade a spade. MLM is a scam plain and simple. They give every reason why they like doing business "this way" but if the product was so great why not distribute it online and let the merits of the product sell itself? I've come close to falling for these things but thank goodness I never pulled the trigger.

Marlo said...

I echo Jason's sentiments. Good products sell themselves, period.

These organizations (I refuse to call them companies) are so aggressive in their recruitment campaigns that the term 'internet job ad' is almost synonymous with 'pyramid scheme'. Virtually all legitimate companies--aside from, say, automobile dealers or food or fashion retailers--do most of their business online. Simply being aware of this fact is an easy way to distinguish the real from the fake.

Marty Nemko said...

Lest there be any doubt, I give MLMs 3 thumbs down as an business "opportunity."

Anonymous said...

I've been familiar with MLMs since Amway in the 70's. In addition, I worked at one myself. As Marty reports, few are successful at it.

However in my experience, those who have been successful have put their hearts, souls, and especially long hours into it. And not just for a few months. Virtually all the failures I've encountered personally have been individuals expecting a get-rich-quick (and easy) scheme.

If you are in the former camp, based on my experience many more than just 10% of you will succeed.

Michael R. Edelstein

Marty Nemko said...

the person willing and capable of working hard would more wisely, in my judgment, spend it on something other than MLM, for the reasons I outline. In addition, many MLMs go out of business or get acquired, the result being that earned passive income usually gets cut or eliminated.

DaveinHackensack said...

"if the product was so great why not distribute it online and let the merits of the product sell itself?"

In the real world, most products or services -- even excellent ones -- don't sell themselves. That's why high-end salesmen are so highly compensated.

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