Looking to improve your situation by starting your own business?
As you’re doing your research you may run across some amazing claims by potential business operations that promise you the ability to work for yourself while selling great products.
The old mantra of “if it is too good to be true, it probably is” should raise a red flag in your head.
When an individual or business claims they’re going to make everyone rich and successful, you are probably speaking to someone involved in an MLM business scam.
What is a MLM Business?
MLM stands for “multi-level marketing”.
In an MLM business the business owner (usually called a distributor) is compensated not only with commission on their own sales, but also on the sales of people they recruit “down line”.
For example, I start a diet video program MLM business. I sell videos for $50 and earn a $10 commission for each sale. However, I also earn $5 in commission for every sale that a person I recruit to the business makes. I could sell one video and make $10, or recruit one person to sell two videos and earn the same commission.
In some MLM businesses there are more than one tier below you — that is, you get commission for the sales of people who were recruited by the people you recruited.
MLM businesses are often pitched as direct sales or network marketing businesses. The former because you are direct selling the product and the latter because it helps to have a massive network to recruit to join in on the business (earning you more commission).
What You Need to Know About Multi-Level Marketing
All in all, this leads to the MLM distributor making grandiose claims about the product and the ability to work for yourself through the business to get you interested.
Instead of focusing on just the product, the MLM distributor wants you to buy the product and become a distributor. You will usually be invited to come to a conference at a local hotel where the higher level distributors (sometimes called diamonds) come in to pitch the product and get everyone emotionally excited about where this magnificent new business can take them.
Difficult to Track or Verify Claims
Another thing with MLM schemes is it will be difficult if not impossible to verify some of the claims made by whoever is trying to sell you into becoming a distributor. The sales chain and how profits are generated is difficult to understand.
Contrast that with a real business distributor relationship where it is pretty basic to see how you generate profits. Sell X products at Y profit, earn Z income. Sell more of X, make more Z.
Instead, MLM believers like to make claims about how much money they’re making, but they will never verify the claims. When you start to break down the math on how much product they would have to be selling in order to hit that income, it quickly becomes apparent that isn’t happening.
Distributors are Users
Many times the MLM business will require their distributors to purchase a certain amount of product themselves. It can be used as designed or used as freebies to give away to potential recruits — but you’re still spending your hard earned money in order to promote the business. (And in the meantime, not generating any profit from the business while you “ramp up”.)
Contrast that to a real business that doesn’t necessarily care if you use the product or not, and won’t require you to buy a certain amount every month or year. They just want you to sell their product as much as possible.
Are All MLM Businesses a Scam?
This is always tough because you don’t want to paint with such a wide brush to not allow any exceptions.
However, if the business is all about recruiting more people to be in the business… you’re probably looking at a scam. Sure, there may be some small profit to be made selling to end users, but any time there is a recruitment aspect to the business I get wary.
Even some of the popular “work from home” or “work for yourself” businesses are under fire. There are quite a few popular MLMs that ex-distributors and bloggers have started writing about to expose the truth. Pink Truth talks about Mary Kay, and Lazy Man and Money has taken on several MLMs including Protandim.
Keep your wits about you.
If something sounds too good to be true, it probably is. Ask someone pitching you an MLM to verify the claims they are making; never take anyone in business at their word.
And if you are required to buy a certain amount of product each month or recruit more distributors to the business… I would recommend finding something else to do with your time.