You’ve seen them around. You’ve gotten plenty of party invites. And you might be even envious of someone on social media bragging about this new life changing opportunity. Yes, friends, I’m talking about MLMs. So let’s dig into it. Attending a party is one thing, but is jumping into a multi-level marketing company a good business move?
First, what’s an MLM?
Well, according to Wikipedia: Multi-level marketing (MLM), also called pyramid selling, network marketing, and referral marketing, is a controversial marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company's products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
You can earn revenue two ways in an MLM: selling products and recruiting other consultants to join you.
You want to learn more about this opportunity. You’re intrigued, you want to learn more, right? Well before you jump in head first at this amazing opportunity, know what you’re getting into.
Here’s three reasons why I don’t believe joining an MLM is a good business move.
1) You have no control over your products
You’re selling someone else’s products. You don’t get to pick the manufacturer, ingredients, name, price, description, or even how many you should stock. Someone else makes all those decisions. In my own business when I get a batch of slow moving inventory, I can discount it, move it out, and never buy it again. In an MLM you’re stuck buying the same products over and over. This flaw is what has killed many Lularoe “businesses”.
You might be thinking “but these products are premium! I’ll have no issue selling them, they will sell themselves!” Ask yourself this: if they are so excellent, why aren’t they on store shelves? If they sell themselves, what does the company need you for?
2) You have no control over your messaging and branding
In a legitimate business you get total control over your messaging and branding. If you tried the color pink but realized your customers didn’t like it so you switched to blue, you can do that. In an MLM you get no decision making power on messaging or branding. You also cannot participate in traditional marketing. You do not get to do social media ads, email marketing, or news pitches. At some MLMs, you’re not even allowed to sell products at vendor shows. You’re at the mercy of the higher ups. Lots of women get involved in MLMs because they are promised freedom, but sadly the opposite is true.
3) Income is largely based on recruiting, not sales
In an MLM you recruit your friends and contacts to become part of the company. In an MLM, any warm body is a “business opportunity”. Friends from high school? Absolutely. Co-workers? You bet. Fellow church members? You know it. Neighbor you’ve talked to exactly twice? Yessir. Random guy sitting at McDonald’s? Yep, him too.
While networking can be an important part of entrepreneurship, it’s not the end all, be all. In fact, in a legitimate business you don’t want to sell to just “any warm body”. That can hurt your business instead of helping it. You only want to sell and market to your identified target market, which is rarely your friends and family.
4) You’re more likely to win at the casino than succeed in an MLM
According to this study of over two million tax returns, 99% of participants of MLMs are LOSING money! You are more likely to win at the casino than succeed in an MLM. Most participants do not get their initial investment back. In one particular MLM, even if you’re in the top 1% of distributors, you could still be losing over $14,000 a year.
Yes, business requires some financial investment. All of those risks should be calculated, and I’m a big fan of doing business debt free. The important thing is that as a legitimate business owner at any time you can cut back your expenses or quit without fear of intimidation.
All MLMs have complicated compensation plans that more closely relate to the gamification you’ll see at casinos and in buyer rewards programs than a legitimate business structure.
5) Ultimately, you are not the business owner
Even though you signed up for a “business opportunity”, ultimately you’re not the business owner. At best, you’re a salesperson for someone else’s company. And guess what? The salesman at Mercedes Benz doesn’t have to buy his own inventory before selling it. MLM’s would have a more accurate name if they renamed their business as a buyer’s club. For signing up, you get a discount on products and the more you buy, the more your recruits buy, and the more recruits you have, you get bigger commissions.
So at this point, you can probably guess my stance on MLMs. If you’re not in an MLM, I cannot advise you against it enough. It’s actually in my policy to not coach anyone in a MLM. It’s not because I don’t like you, I DO! It’s just that you simply don’t have enough control over your business for my coaching to help you. If you love your company and want to earn the revenue that you were promised, go talk with the person who recruited you. They should be the one to coach and mentor you within the company. But if you’re not happy with your position in an MLM and want out, I have a lot of compassion for you. You have been misled and lied to. If you want to make the switch to pursue your own business, I’d be more than happy to help you make the switch! Let’s talk!
Hey! I'm Christine, I'm an entrepreneur and small business owner who has learned by trial and error. I write helpful articles that help you take your next steps in business. Occasionally I like to mix things up and dash in a bit of lifestyle topics. Thanks for being here!