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MLM: BEFORE starting – 8 Critical Things You Need To Know [Updated for 2018]
Is an MLM a good business for you? Only you can decide. In this article we will go through what MLM’s are, how they work, and how you can make money in MLM.
#1 First off, let’s define MLM because, it can be extremely deceptive to try to figure out
#2: Who are the major players in the MLM Industry?
#3: You Make Money From Recruiting, Very Little From Sales
#4: Selling the Same Product Everyone Else is Selling
#5: Can you make money with MLM? Can you get Rich?
#6: Why you will FAIL at MLM
#7: The “Math” of MLM’s
#8 Victims of the CHURN
So here is how the MLM, network marketing, whatever you want to call it gig works
As one billionaire hedge fund manager and one of the richest guys in America put it: He’s Betting on Zero against Herbalife one of the biggest. It’s here on Netflix
What is an MLM? And why are they so dangerous? Find out why very few people make money from them, and why you should avoid it. UNLESS…
Big Truth Here: Drumroll Please… I have tried several MLM’s in my lifetime and not had a lick of luck with any of
them. I thought – and was told , that the reason i didn’t make it in the MLM World was because I sucked at sales. I
didn’t have the initiative or the drive and if I’d just cold call 125 people a day or bug the living shit out of
everyone I ever knew to buy in to the product AND the Down-line, BLAH, BLAh, F*ing BLAH that I would make it. Me
being me, I took that hit on my confidence and my ego and hid it from the world, until today.
Critical Thing #1 First off, let’s define MLM because, it can be extremely deceptive to try to figure out.
I mean, the industry itself tries to disguise what it’s doing by calling it something else, especially when you ask them directly
if they are MLM. Wikipedia has a nice neat definition of what an MLM is and how it works including an info graphic that looks strikingly – like a pyramid. Imagine that.
Multi-level marketing (MLM) also called pyramid selling,
network marketing, and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce (also called participants, and variously known as “salespeople”, “distributors”, “consultants”, “promoters”, “independent business owners”, etc.) selling the company’s
products/services, while the earnings of the participants are derived from a pyramid-shaped commission system.
How Do MLM Companies Pay Their Distributors?
Although each MLM company dictates its own specific “compensation plan” for the payout of any earnings to their
respective participants, the common feature which is found across all MLMs is that the compensation plans
theoretically pay out to participants only from the two potential revenue streams.
Get paid by making sales and building down-lines
The first stream of compensation can be paid out from commissions of sales made by the participants directly to their own
retail customers. The second stream of compensation can be paid out from commissions based on the sales made by
other distributors below the participant who had recruited those other participants into the MLM; in the
organizational hierarchy of MLMs, these participants are referred to as one’s “down line” distributors.
MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of
relationship referrals and word of mouth marketing.
Most importantly MLM salespeople make money by recruiting others
to join the company
as fellow salespeople so that these can become their down line distributors. According to a report that studied the
business models of 350 MLMs, published on the Federal Trade Commission’s website, at least 99% of people who
join MLM companies lose money. Nonetheless, MLMs function because down-line participants are encouraged to
hold onto the belief that they can achieve large returns, while the statistical improbability of this is de-emphasised.
So, in short MLM is:
- Direct selling
- Social selling
- Network marketing
- Referral marketing
- Team marketing
- Consumer direct marketing
Critical Thing #2: Who are the major players in the MLM Industry?
Well, you would be surprised about a few and you have probably bought their products or had some kind of interaction with their
“salespeople”. Here is a partial list of some of the heavy hitters:
IMPORTANT NOTE: This is only a partial list – there are many more out there.
Amway Global, previously known as
Forever Living Products
Fuel Freedom International
LegalShield, previously known as
Pre-Paid Legal Services
The Longaberger Company
National Safety Associates
Nature’s Sunshine Products
Neal’s Yard Remedies Organic
Nu Skin Enterprises
The Pampered Chef
Qnet, previously known as QuestNet,
GoldQuest, and QI Limited
Rodan + Fields
USANA Health Sciences
World Financial Group
I know what you are thinking, sitting there, reading this post. I know how you feel. In the big picture though, who is really making the money on these MLM deals? Is it going to be you, sitting there, ready to spring at the opportunity of “having your own
business” they tell you are going to have and be so proud of? Statistically speaking, probably not and here’s why:
Critical Thing #3: You Make Money From Recruiting, Very Little From Sales
Rather than your profit coming from the actual products you sell (which in fact, you buy from them at about 50% retail), it
comes from recruiting people into the business as sellers under you (your ‘downline’) and making commissions on
their sales (and their down lines). In fact, what you wind up selling is usually not the product that you have warehoused in your garage or worse yet, rented storage facility, but the “opportunity” that your sales rep sold you.
That’s how you make “bank” on MLM – selling the “Dream” to others, not selling the product.
Does that automatically mean that you will fail at it? In short, YES and NO.
If you are very good at sales and managing teams, you could do extremely well with MLM.
If you love the product and can sell that product – Amen, Hallelujah to you.
However, if you are extremely good at sales and managing teams, why waste the time., money and effort with MLM and start your own company with your own product with much less overhead?
That’s one of the rubs that your Rep will point out, that it costs money for research and development, BLah, Blah, F*ing Blah. And it does if you are reinventing the wheel. You don’t have to do that though.
And these sales aren’t just to customers. You see, in order to join an MLM you usually need to buy products to sell (often referred to as a starter kit, or similar). And then in order to remain a seller, stylist, supervisor, or whatever term the company uses, you
often need to make a minimum number of sales in a given time period (though not always).
Often the only way to make these sales is to recruit people under you (making commission off their starter kits) or to buy products yourself.
Otherwise you’re left trying to sell your products to friends, family, moms at the school gates, and anyone you come
into contact with (one of the reasons why some of the more pushy/desperate MLM reps get a bad reputation).
Have you ever known or come across at least one “of those” MLM Douche?
Don’t be a Network Marketing douche. You will lose friends.[images style=”0″ image=”https%3A%2F%2Flucindabrummitt.com%2Fblog%2Fwp-content%2Fuploads%2F2018%2F11%2Fmeme-douchebag.jpg” width=”600″ align=”center” top_margin=”0″ full_width=”Y”]
Or, you create opportunities to sell. For example, by starting a dodgy fitness group for stay at home moms in your area and selling to/recruiting them while their guards are down (a strategy we’ve seen Herbalife reps use haven’t we?
Truth is, it doesn’t have to be that hard and you get to miss all this:
- Pushing your revenue “up the ladder”
- Pushing someone else up first in the hopes that they pull you along as they go higher
- Pulling up others in your side hustle (don’t you do that enough in your day job? Seriously?)
- Buying a ton of stuff you are never, I repeat, NEVER going to consume yourself. This one reminds me of a
friend that did Mary Kay 20 years ago and still has the product in her garage.
- Another point BUYBACKS: Selling back product to the MLM distributor that you cannot sell – talk
about sticky – you will never get all your money back – EVER
There is no monkey on your back like debt. I know, I have been there, done that. And I have seen people go into debt
to buy their distributor packs just to get started. Being under the gun absolutely sucks. It’s like getting assigned a load late that should have been picked up days ago and then having dispatch chicken out on you by giving the broker your cell phone number to harass you all the way day and night through the trip. Believe me, you really want to avoid that at all costs.
Critical Thing #4: Selling the Same Product Everyone Else is Selling
Even if you’re not put under any pressure to sell – and some of the MLMs now reassure you by saying you have no sales minimums to meet (usually those that get you in under the guise of buying product for your own use at a discount – the fact remains you NEED to sell to make money.
And then the problem of saturation kicks in:
You see, there are lots of other people who need to sell the same products as you to make money too. And quite
possibly living in the same area, with the same pool of potential customers as you. So if you have the misfortune to
sign up to an MLM that’s already popular in your area or social circle, you’ll probably find it hard to recruit customers. Seriously, think AVON, Mary Kay, Beachbody or Scentsy here.
Or better yet – Remember that time of year rolls around that your kid, your neighbors kid, your cousins kid and your bosses kid all have to sell Girl Scout Cookies? For shit’s sake, you can’t even go into a Walmart without being assaulted by packs of bright
faced girls begging you for cookie sales. Whelp, believe me when I say, It’s just not as cute when you do it.
Critical Thing #5: Can you make money with MLM? Can you get Rich?
No and YES. However, you must have mad recruiting skills. You know, like the kind that trucking company recruiter had when they recruited you to drive for them? Wait… You’re not a trucker? Ok, think the recruiter that works at or with your employer to
keep the stream of new faces hitting the scene. Yeah, those kind of skills. Is that to say that no one makes money with MLM? Not at all.
A few people do make big money from MLM’s.
And these people are often trotted out in promotional videos, celebrated at annual events, and very publicly ‘rewarded’ with prizes like prestigious cars (although these ‘prizes’ aren’t as generous as they first appear – you simply get a discount on the lease
which you must take out in your own name, and if your sales fall, the discount ends…). You also need to promote the company on the car they ‘give’ you. Those pink Caddie’s don’t seem all that glamorous now do they?
The people who succeed at MLM’s would probably succeed in other small businesses too –
they have the right network and skills, and (importantly) they got into this particular MLM in their area early.
And this is one of the reasons why most MLM’s aren’t ethical:
they sell the dream that anyone can be successful with their ‘opportunity’. They don’t make it clear that only a small percentage of people who join them will make a livable income (or any income at all).
Instead, those who fail just didn’t work hard enough (funnily enough one of the new promotional videos for an MLM emphases ‘hard work’ several times). The message? It’s not the MLM that didn’t work, it’s you. (Funny, I think I heard this before!)
Critical Thing #6: Why you will FAIL at MLM
It’s not you. As this research of 11 MLM’s by MLM expert Robert FitzPatrick discovered:
99% of all distributors earned on average less than US$13 a week in commission
– which didn’t even cover the minimum purchases they were required to make in order to qualify for commissions. In half of the MLMs, 70% or more of participants earned no income at all (the study found that 96% of Arbonne’s sales representatives apparently never earn any commissions).
People are recruited into the companies with the offer of an ‘income opportunity’, and yet statistics show that the income opportunity is virtually non-existent and falsely promoted.
Indeed, the 11 MLMs studied had unrealistic retail sales opportunities – the products were overpriced, meaning reps couldn’t make much money selling them.
Recruitment into these companies created billions of dollars of losses to consumers each year. The losses of these 99% of distributors were passed up the sales chain to the less than 1% of the people at the top as commissions.
Virtually no MLM companies sell significant amounts of their products to the public, which means they aren’t
a ‘direct selling’ business, as they promote themselves.
Between 60-90% of reps for these 11 MLM companies leave every year,
and nearly all these people stopped buying the ‘wonderful’ products they’d been selling when they quit.
Virtually all of the MLMs require you to meet monthly or annual purchase quotas to qualify for the ‘commissions
and rebates’ you are promised.
Commission pay plans in the 11 MLMs are structured to send most of the money to the top levels.
In one MLM, 84% of all commissions go to the top 1% of its distributor chain.
“A statistical analysis of income disclosures made by 10 major multi-level marketing (MLM) companies…
reveals that, on average, 99% of all participants received less than $10 a week in commissions, before all
You can check out his full reports on the top MLM companies here.[video_player type=”youtube” youtube_show_title_bar=”Y” style=”3″ dimensions=”560×315″ width=”560″ height=”315″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”]aHR0cHM6Ly95b3V0dS5iZS9zNk13R2VPbThpSQ==[/video_player]
Critical Thing #7: The “Math” of MLM’s:
If you join today and you refer 5 people, then they will refer 5 people and they will refer 5 people, and so
on. Then in 6 months you will have 20k people in your down-line and be making $10k a month, and in a year, you will
Sounds a lot like this:[video_player type=”youtube” youtube_hide_controls=”Y” style=”3″ dimensions=”560×315″ width=”560″ height=”315″ align=”center” margin_top=”0″ margin_bottom=”20″ ipad_color=”black”]aHR0cHM6Ly95b3V0dS5iZS9tY3NrY2t1b3N4UQ==[/video_player]
The “REALITY” of the “MATH”
Using the 80/20 formula, in order to sign up 5 people you will need to start with a list of 125 prospects. Why? Because of the 125 prospects only 20% (25) will agree to hear your sales presentation. And of those 25 only 5 (20%) will join, and that’s optimistic.
ANNNNNND on top of that,
the average MLM associate quits after just 4 months.
Critical Thing #8 Victims of the CHURN
Although MLM’s don’t publish their turnover or “CHURN” rates, I think I have finally hit something that has worse turnover rates than the Trucking Industry in America. How quaint.
One of the arguments MLM reps make in defending their ‘business’ is that it’s just the same as any other small business. You need to invest to get started, you need to sell, and some people just aren’t cut out to make it in business, so will fail.
But when you look at the number of MLM ‘business owners’ who do fail, you see why the odds are stacked far more against you when you join an MLM, compared with starting another small business.
In research for his free e-book The Case (For And) Against Multi-Level Marketing, John M Taylor PhD discovered this about
the drop out rates for MLM schemes:
- 50% of representatives drop out in the first year of operation.
- After five years, at least 90% have left the company.
- By 10 years, only those close to or at the top remain, meaning at least 95%
have dropped out.
To put these statistics into context, John compared them with the failure rates for traditional small businesses using the Small Business Administration’s statistics for 2008. And he discovered that 44% of small businesses survive at least four years,
31% at least seven years, and 39% are profitable over the life of their business. In 10 years only 64% of small businesses fail.
Indeed, because of MLM failure rates (and other criteria) MLM businesses in the USA apparently don’t qualify for SBA loans or other small business funding and assistance programs.
Now take a look at the Trucking Industry Stats:
December 8, 2017. Driver Turnover up at Large Truckload Fleets. The driver turnover rate at large truckload fleets
rose five percentage points in the third quarter to an annualized rate of 95%, according to American Trucking Associations Chief Economist Bob Costello. October 22, 2017.
Looks pretty similar huh? And, it’s nothing new. this has been going on in the trucking industry since Jesus wore sandals. And no, I do not mean Jesus, the gardener.
MLM’s appear to exploit the weak and vulnerable with promises of ‘income opportunities’.
And several groups are a dream come true for MLM’s is stay at home moms, millennial looking for some extra cash, people who are
underemployed, dissatisfied truckers, and Latinos in general. Here’s why:
- Our confidence is often low, making us more vulnerable.
- We’re often looking for ways out of the 9-5 treadmill.
- We’d love to earn money from a side hustle in hours that suit us.
- We have wide networks of friends and fellow women, moms, drivers.
- We’re a great target audience for their products.
Given the above, the ‘business opportunity’ promised by MLMs can often look like a gift from heaven to us.
We’re told that, with a tiny investment (compared with starting your own business from scratch) you can join an established business that promises a
comfortable, easy income – and even great wealth.
And you can get all of this just by selling wonderful products to your friends and family. Easy!
Truckers are used to hard work, after all a regular work week to us is 80 hours. Conjuring up pictures in our heads of being home all the time with our families and making bank at the same time, who wouldn’t want to do it?
So here is how the MLM, network marketing, whatever you want to call it gig works:
- You sign up under someone as part of their down-line. Unless you are fortunate enough to get in at the beginning phase as an “early adopter”. In that event you are still in a down-line but you are nearer the top of the pyramid.
- You buy a starter kit, some product, then you become Super Salesperson to sell product and recruit more people to your down-line. At that point, you are building a “Sales Team” to do the same thing in order to grow your down-line, earn commissions, etc.
- Recruit your “*ss off” in order to replace the people who are inactive (remember 80/20 & covering your churn rate).
So, I think by now you will be getting a good idea of what Network Marketing is and how it works.
If you are great at sales, team building and personnel management and training, you already have a leg up on everyone else in business anyway. So maybe this will work for you.
Otherwise, you may be like most of the unfortunate ones who get in and make $10 a month if that. In that case, I have quite a bit of info about other ways to make some cash with a side hustle you just might love.
As for myself, I invested in the skills to do something different for myself, enjoy my job, my life AND my side hustle, and you can too.
Keep the Rubber Side Down,