What is Multi-Level Marketing?
Multilevel marketing, also known as “network marketing,” is a legitimate way of selling goods or services through independent distributors.
Generally, independent sales people do not receive a salary. Instead, they are compensated through commissions based on the sale of products, both for their own sales as well as on the sales of those they recruit and support. Legitimate MLM’s base compensation primarily on the amount of products sold – not on the mere act of recruiting. That is a key difference between Pyramid Schemes and MLM’s.
MLM plans are legal as long as the primary focus of the plan is the selling of actual products and services.
Commissions gained only by recruiting new members into the plan are generally outlawed. Consumers should be wary of MLM plans that promise big earnings with little or no efforts, especially if such promises are accompanied by a “guaranteed” return on investment.
For most MLM plan distributors, the MLM is not their full-time job. Many participate to earn extra income on top of another career.
MLM plans help their distributors focus on building a sustainable business based on sales of the actual products and services to their customers, not to “downline” distributors.
They provide detailed information in writing to new and current distributors, including business plans, marketing information, financial reports, and independent references. In good MLM plans, the parent company should buy back unsold products or unused supplies at no less than 90% of the wholesale purchase price.
The differences between legitimate MLM’s and Pyramid Schemes are what makes one a legal business model that works for some consumers, and the other an illegal, money-losing scam.
Many MLMs are illegal Scams
Before you jumped into a MLM and thinks that’s a good idea, read this first. Many MLMs are scams, in fact, apart from well-known international brands, there is a very large proportion of MLM schemes are really scams. I had personally lost a lot of money in a MLM scam, and worse, referred 3 friends to them who had refused talking to me after that.
It was a candle making scam, who asked upfront fee to join as a member, which came in as a Group member or individual member; you had guessed, as a group member, you paid more upfront fee, and you get a share from individual members you recruited under your “network”.
What happened in the end was the company was bankrupt, they had cheated over 700 idiots like myself who are all legimitae members who simply want to establish a 2nd income for the family, most of these were being paid by family members usually housewives who need to be home looking after children but needed a 2nd income to supplement.
It is very sad to see that these MLM schemes really just pray on the vulnerable people; they are usually well-prepared, they can show you legal contracts, they can show you how it works, you can talk to their suppliers; you can even meet with their solicitors. In the end, it is one big group of scammers together.
Once the company has declared bankruptcy, you are unable to recover any funds from them.
The same kind of story has been repeated over and over again throughout Australia, and sadly, we also discovered that many of these scams were intended to target at immigrants especially Chinese immigrants, taking advantage of their poor level of English and legal knowledge. My first advice to those who wish to join MLM is to equip yourself with sufficient knowledge about MLMs before you even look into proposals.
Here are 5 questions I asked when approached by MLM schemes:
1. Where do you live? If you are such a successful networker, how come you are still renting a tiny apartment in Sydney? I used this tactic last month when I was approached by one lady who was going on-and on about how successful she is, then I just told her, bring me to your house, and she gave up.
2. Show me the statements; show me the bank statements that you actually receive commissions and fees; usually they will dodge this by explaining how this is done through companies — etc, typical nonsense.
3. Give me 3 referrals that I can ring, this is almost like a job interview. They can usually provide these, so be careful, but ask these referrals hard questions as well.
4. I want to you pay some advertising and marketing fees. My business mentor once told me a very good point: What’s the difference between a Good and Bad customer? Good customers pay, bad customers don’t. I had asked 2 MLM “recruiters” this: “Fine, you want me to join your network, you know I own a website, why don’t you spend $500 marketing fee this month and advertise on my website”. One way to eliminate bad business people is to ask them pay a small fee upfront. These guys have all ran away of course.
5. Show me the products, it is ridiculous, they can waste your time whole day and not even showing you one product; that’s because they don’t even know what they are selling; and spend all their time try to recruit.
Most people want fast and passive money, and that’s why they join MLM companies. However, they do not notice that according to statistics, most of MLM are scam-ful, and most of those who joined, end up getting scammed.
Bill Gates successfully made Windows the most popular operating system in the world because he did not sell it through MLM; successful cosmetics companies made good profits through their good products not through MLMs.
You do need to be dubious about MLMs before you join them, as not only they are not for everyone, there are many traps ; and you may end up losing your money and importantly, your relationship with your friends, colleagues and even relatives.
Successful MLM Networkers
Now I have talked my own experience, I guess I was one the unlucky ones. There are, however, successful MLM professionals that I have known personally, but these are quite a small numbers; but there are successful formulae behind their successes.
One of my university friends started his own MLM network when he was in 2nd year of university, it was an unusual career for him; as he is selling female cosmetics. What turned out to be a rather interesting case was, he has been more successful than anyone else; for that girls will actually buy from him than from others.
Eventually, by the end of Year 2, when he was 19 years old, he had over 25 people “recruited” under his network. He was a very dedicated networker, in fact, he has given up his degree in the end because he was too busy and made enough money to open up his shop.
What he has done very successfully was able to penetrate into the previously untapped students market for cosmetics; and you need to utilize students to sell products into fellow students. It was also very time consuming, I had seen him training his newly recruited students on the weekly basis about the products.
However, one challenge he had faced, and this is the same for all MLM networkers, you can recruit new people under your network, but can they achieve any sales for you? Yes, you are very dedicated, but how about the people in your network? This was exactly the same problem he had faced, many of people in the network has seen this as a hobby, and not really dedicating much time to it.
The only way to run a successful and profitable MLM business is through active marketing, promotion and there is a lot of effort involved, it’s not a simple sit and wait around passive income.
Let me go through some tactics that are quite successful, as you will see; there are no different from other businesses:
1. Organize Sales Events
One of the tenants in our apartments previous was a very active MLM networker, I think she was working for Avon, she was in charge of a very big “territory” and was the No. 1 sales in the region. She had around 40 to 50 under her network, and her apartment was always full of actions with people coming in and out all the time (the consequence was displeased neighbours and landlord). Anyway, she was organizing sales events in her “territory” on the monthly basis, this included setting up stands in the local supermarkets, pedestrian malls, music or other production promotional events. Some of these events were sponsored by the MLM company, but often, this had to come out from her own pockets.
This is why it is important to have a larger MLM organization to support you as they have marketing budget in place every year for promotions and sponsorships; not individual managed MLMs where the founders themselves can hardly survive themselves.
2. Utilizing Schools Networks
We have found that by large, MLM networks are popular amongst parents who are seeking a second income apart from their jobs. Schools are becoming a popular source to direct sell products, but you should be cautioned in doing before you start selling to fellow parents, as you may soon become a person on black-list very soon.
Schools are natural perfect grounds for direct selling, but too many parents have pushed too hard. We have one situation from our local school where this particular Mum who has been selling too hard to other parents including ourselves, she started calling us in evenings and wants to organize demonstration meetings. Naturally, such sales act had annoyed many and she was unable to achieve sales.
The more subtle way is through brochures, there are parents who are direct selling toys, books and kitchenware; simply by distributing brochures through schools. This is a much better and non-invasive sales tactic, and schools sometimes will take a small proportion from the proceeds as part of their assistance.
3. Utilizing Parenting Groups
Similar to utilizing school networks, there are many parenting groups or activity groups such as Gymbaroos, Kiddie Gyms and Music Activity Groups. Once again, you can work with group coordinators to promote your products, this usually happens at the end of each school Term; or perhaps around special events such as Christmas seasons.
4. Local Stand at local meeting points
One of the parents from our local schools is actively involved in Tupperware, one of the world’s largest direct selling companies specializes in storage products designed for kitchen, lunch boxes, tools — etc. It is also one of the most popular Direct Selling systems adopted by thousands of households worldwide. We have 2 mums running this in our locality, one has set up a small stand in a nearby Coffee shop every Tuesday demonstrating to Mums, usually in the morning after the Mums have dropped off their kids at schools; again, this has been quite s successful direct selling strategy one can use.
5. Utilize your websites
Many of us now owns websites, I have 3 websites myself, all providing different businesses and products. There are even more users who use popular online auction websites such as ebay or graysonline. Perhaps you are also on popular Social Media websites like Facebook, LinkedIn or different blogs.
These are all great platforms you can use to achieve sales, on ebay, you can start selling your products or set up an online store on ebay, I have seen many successful ebay stores, one of my business associates has sold over 155,000 video games over ebay store each year.
You can also utilize Facebook as it is designed for networking and use it effectively to recruit new people into your sales group or promote your products.
6. Direct Mailing
Direct Mailing is still a very effective way in reaching out customers, especially in today’s market where Internet has dominated most of the marketing efforts; there is actually LESS companies using direct mailing now, hence the competition is actually lower.
In the past, we used to get maybe 20 junk mails a day, now this has been reduced to 1 or 2 even zero each week. This means, your brochure / catalogue will be more easily to catch attention from potential customers.
You don’t need to do the mail-dropping yourself, there are companies out there which you can outsource; they will print and mail-drop your catalogues in selective areas according to your budget.
What Direct Selling Opportunities are out there?
There are numerous systems around; I will just go through some of the most popular ones worldwide. When comes to “Multi-level Marketing” or “Direct Selling”, most people will associate them with Amway, Avon, Tupperware straight-away, all of them are American systems and have been around for many decades.
Personal Care Products
Cosmetics remains as the most highly sought-after direct selling opportunities; although, this has been expanded to “personal care” products instead of just cosmetics, the range of products now include hair shampoo, herbal products, aromatherapy, even tissue boxes and cotton buds.
If you are considering about this, one thing you should be aware of is your product range and their price range. If you are actually selling above the price in supermarkets or pharmacies; then why would someone, especially your personal friends or relatives buy them from you? This is a fast way to destroy your relationship with others!
One advantage when the concept of Direct Selling was originally introduced was offering consumers a choice to buy bulk amount products at discount price than at stores, also free delivery which add to convenience. You have to always remind yourself these 2 advantages before you choose MLM as your next career.
The 2 highly successful Direct Selling systems back in the 1980s were Encyclopedia; we even bought 2 sets, one set of World Books and one set of Great Britannia from direct sales guys. Things have changed since, and they are now available in CD-Rom formats.
Nevertheless, there are still popular systems out there providing individuals to direct sell books, especially children books; some are even exclusive to direct selling opportunities only. This is usually through an ordering system where you can fill out the catalogue to place your orders.
There was once a company called Innovations in Australia which specializes in direct selling domestic appliances, lightings and personal electronic devices like massage systems, blood pressure measurement instruments, solar lightings..etc. I am not sure if this company is still around, but I have received brochures from other direct selling companies providing similar products through catalogues.
Insurance & Financial Products
Direct Selling used to be the most popular sale strategy adopted by insurance companies in Asia. There are also direct selling insurance products available in Australia, in the past, AIG, before it collapsed was offering a wide range of life insurance and investment products to a wide range of customers in Australia, especially the Chinese and Indian communities.
Some insurance companies are now selling car insurance and life insurance products through MLM networks, although it is yet to become a mainstream in Australia, and it seems this has been concentrated in the ethnic communities at moment.
Toys and Video Games
I have been approached several times offering opportunities to buy toys & video games from direct selling networks, these were usually associated with schools and playgroups described above, where you can place orders through schools. However, checking on these prices, I have found some products are actually selling above prices you can find them in the shops, but they do deliver directly to your home which is more convenient especially around Christmas seasons.
In North America, our research has found that this seems to be the fastest growing MLM opportunity as the personal care products is reaching saturation with too many competitors. Another advantage in selling toys/video games are they do not expire, and you can always use different holidays like Easter, Birthdays, Halloween, Christmas as opportunities to sell them.
Health Supplements and Drinks
There are brands like Mona-Vie and Herbal Life, both are well known brands for MLM systems, I have been approached by at least 10 of my friends to sell these to me as well as inviting me to become their network members.
Sadly, these are also some of the worst scams occurred in the MLM industry, some health products have been compromised in terms of their quality, and many have actually failed to comply with safety checks. Another concern is these products are perishable goods just like food, you only have limited time to sell them.
As you can see, the word “Multi-Level-Marketing” is really about Direct Selling. Ultimately, you are the one in control, but do not expect to be a lazy, passive business. There are many advantages in joining a MLM systems; but you have to achieve sales in the end, no matter how many people you recruit under your network, you have to make sales to earn your commission.
I think this is the fundamental mistake made by many networkers; they have hundreds of people under their networks, and they focus all their time and efforts in recruiting more people instead of making sales.
Multi-level-marketing continues to grow, and its significance is likely to become much more significance in coming years, many industry analysts are also expecting this will eventually combine with Online Social Networking as well as traditional networking events, and become a very powerful sales channel. Additionally, we can also foresee Multi-level-marketing being adopted beyond just goods, and will be expanded into services as in the case of insurance and financial products.
Unfortunately, MLM scams will also rise consequently, and more MLM schemes will come out cheating on both consumers and networkers; a number of MLM schemes have been shut down in United States and Australia by Government already, and more are likely to occur soon.
But if you research in-depth about these schemes, these scams can be prevented easily. If you are creative in sales & marketing ideas; as well as able to develop your own networks, then MLM is certainly an income producing opportunity, not just passively but can be your main income producing opportunity.