Are you thinking of starting a home-based business, in particular a multi-level marketing business? Chances are you know a few people that have started an at-home MLM business and have likely heard the pitch before – “work from home and enjoy flexible hours! Join my team to empower others and make money all from the comfort of home!”
But what exactly is multi-level marketing and should you get involved? Here is what you need to know about multi-level marketing before you jump in.
What You Need to Know about Multi-Level Marketing
So what exactly is multi-level marketing? Multi-level marketing, also commonly referred to as network marketing, referral marketing or in some instances, pyramid selling, is a company that generates revenue by selling direct to consumer products through independent sales representatives. The sales representative’s job is to sell the product as well as recruit and train new independent sales representatives.
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How do MLMers Earn Money?
To earn money as an independent sales rep you need to recruit, recruit, recruit! Yes, you can make some money just selling products and not recruiting, but that amount is often a very small and not sustainable income. To earn enough money to live on sufficiently or to replace your part-time or full-time income, you need to recruit other people and they need to recruit people.
Levels of Accomplishment
Most MLM companies have “levels” of accomplishment whereby the amount you make increases as you graduate from one level to the next. The number of people you have recruited (often referred to as your “downline”) determines what earning level you will be in.
To simplify this understanding, the more people you sign up as a customer and sales rep, the more money you can potentially make. The catch is, however, that those people need to sign up other people and so forth. In many cases you can lose your earning status (level) if people you recruited have quit. You need to constantly be recruiting in order to maintain your status, move up the “pyramid” and earn money.
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How Much Money Do you Earn?
When someone sells you a pitch, chances are they have told you the unlimited potential income that you can make. It sounds great! They show you the flashy company propaganda charts, suggesting that even if you just work a few hours a week you could potentially earn a relatively good yearly income. But is this actually true?
Let’s take a closer look at what these charts are actually telling us. For many MLM companies, the earning potential is based on the top performers that represent a very small percentage of independent sales reps. Let’s take a look at two different MLM companies:
Doterra Essential Oils
The table found below is provided on Doterra’s website under their 2018 Opportunity and Earnings Disclosure. This chart outlines the different levels of Wellness Advocate Leaders (sales reps). At first glance it looks to be very lucrative, even for those who only stay in the first (silver) level. It suggests that 62% of representatives in the silver level are making $28k annually; a tidy income for the first level. As you move from one level to the next your salary doubles and in some cases more than doubles.
Is there a catch?
Yes, there always is. If you read the print directly above the chart it states that this chart represents the top earning 1% of all Wellness Advocates. So if you look at those numbers again, 62% of the top 1% of welness advocates in the silver level are making on average $28k a year. In laymens terms, 0.62% of silver representatives make $28k per year. The other 99% of representatives are NOT making this.
If the top 1% of silver representatives are making $28k annually then what does that mean for the remaining 99%? It does not paint a very lucrative picture anymore. The chart also states that this top 1% are working full time hours, not partime. This is on par with working a 9-5 job for minimum wage, however, it does not take into account the costs associtated with start up fees, catalogues, flyers, party’s, samples and any other expenses. At the end of the day, an elite silver representative is likely making less than minimum wage working a 9-5 job.
Mary Kay:
If we look at another well known MLM company, Mary Kay, we can see basically the same strategy and the same potential profit outcome as Doterra. Looking at their website, we can see that 83% of independent beauty consultants who were not eligble to earn a comission made $0. This means that they simply purchase beauty products at a discounted sales price and sell at full price to friends and family to make a profit. The catch, however, is that they need to submit an order every 3 months for a certain amount of money in order to be eligble to receive the discounted products.
To start receiving commissions, the independent beauty consultant needs to start recruiting others into the company. As seen on the chart, 15% of these independent beauty conultants make on average $206 per year. They also have to be an active member submitting a $450 order every three months. This means that in order to make an average of $206 yearly income you need to have a combined yearly order of $1800. Many consultants often end up purchasing inventory to stay an active member with the hopes of selling their inventory.
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While the reality of joining an MLM company may not sound as rosy now, I am in no way suggesting that the products themselves are inferior or poor quality. I have many friends that sell through an MLM company and are offering very good products. The point of this post is to make sure that you are aware of exactly what you are getting into before you sign up as a sales rep, especially if you plan to replace a part time or full time salary. A flashy website and pretty charts look wonderful at first glance but there is almost always fine print that doesn’t sound so great (which is why it’s usually too small to read!). So before you jump in, ask yourself these questions:
What You Should Ask Yourself Before Signing Up
- Are you a good salesperson?
- Do you have a plan to sell to more than just friends and family
- Did you research the company you are interested in, the work required and actual revenue potential (hint – read the fine print)
- Are there start up costs?
- Can you return unused inventory?
- Have you talked to other distributors about their success? (not just those in your upline)
- How much is your time worth?
- Do you enjoy making sales pitches?
- Do you like the products you would be selling?
- Does the company provide an income disclosure statement?
I hope this has helped with your decision making and given you a few things to think over before starting an at home MLM business. If MLM is not for you, check out my post on 8 Ways to Make Money from Home.
If you are worried you may be involved in a pyramid scheme or you need help identifying one, check out this great video: How to Spot a Pyramid Scheme.