Being your own boss. Working your own hours. Finding an effective balance between your private and professional lives. And, of course, making a decent amount of money in the process. These are the hopes of everyone still chasing that elusive American Dream. And for many, the solution seems to be signing on with a Multi-Level Marketing (MLM) business.
MLM businesses — also known as referral marketing, or network marketing — follow a direct-sales marketing strategy. This means that rather than field an in-house sales department, these businesses outsource to freelance salespeople (often called distributors), who are incentivized to recruit other potential distributors. MLMs can be found in essentially every B2C industry, including weight loss and athletic supplements, clothing, beauty products, and more. The advantages of finding the right MLM often go beyond freedom and dollar signs. Many direct sellers enjoy the sense of community that comes from being a part of something, and rewards programs and other special prizes can help increase the fun factor. However, not every MLM is a safe bet.
MLM vs. Pyramid Scheme
Multi-level marketing doesn’t have the best reputation. This is thanks, in part, to the sometimes-blurred line between MLMs and illegal Pyramid schemes. But while MLMs and pyramid schemes both rely on downstream recruits, there are some important differences to be aware of.
Perhaps the most obvious distinction between MLMs and Pyramid schemes is this: MLMs use multiple-level direct selling strategies to sell products. Pyramid schemes have little-to-no actual product, and instead focus all of their energy on recruiting new participants, who pay money up the line for the opportunity to recruit people under them. In other words, pyramids schemes promise that by simply paying money and recruiting others below you to do the same, you’ll enjoy significant returns.
Pyramid schemes are illegal, and the Federal Trade Commission regularly identifies and shuts them down. However, sometimes the line between pyramid scheme and MLM gets blurred.
Warning Signs to Watch out For
Direct selling is a perfectly legitimate approach to sales, and multi-level marketing can be an effective way to secure new talent. However, if you’re interested in giving an MLM business a try, here are some indicators that they may not be entirely on the level:
- Emphasis on recruiting, rather than selling
An honest, on-the-level MLM is focused first and foremost on selling a product. To cut overhead costs and ensure a dedicated sales force, they outsource to interested independent sellers. These sellers are also encouraged to recruit other sellers. By comparison, pyramid schemes exist almost exclusively to recruit new members, all of whom pay money to those who recruited them. This results in a pyramid shaped organizational structure, with a wide base of people paying money upwards and a very narrow tip of elites who pay nothing but receive the highest portion of the wealth. In a pyramid scheme, if there is any product being sold, it will be only of secondary focus to recruitment.
- Unrealistic Promises
There’s a reason that the phrase “get rich quick” is almost always followed by the word “scheme.” If the MLM is promising you the moon for very little work on your part, then you may want to reconsider. Also, be aware that some MLMs will offer huge upfront commissions or other incentives to bring in new sellers. It’s worth taking a closer look at the long-term rewards, so you can be sure you’re not getting roped into something you don’t want to be a part of. If they promise you financial freedom without ever having to work again, you’re almost certainly dealing with a pyramid scheme.
- Heavy Initial Investment
A pyramid scheme will charge new members a hefty buy-in fee for the opportunity to recruit others. A less-than legitimate MLM will do something very similar: demand a large upfront investment. The business in question may say that the investment is to cover the cost of trainings or sellable product, but will instead be much larger than the value of those items or services.
- No Return Policy
In a legitimate MLM, unsold product that is in good condition can usually be returned. A pyramid scheme, on the other hand, is not interested in the product at all, and certainly isn’t interested in returning your money once they have it. The lack of a buy-back option is a good indicator that the business in question may be a scam.
Questions to Ask before Signing on with an MLM
There are a lot of people who will tell you that every MLM is just a pyramid scheme in disguise. But while some MLMs certainly do fit this description, there are actually a number of multi-level, direct-sales businesses that operate well within the law, offer legitimate products, and responsibly support their freelance distributors.
If you’re interested in joining an MLM. here are some questions you should be asking first:
- Is this an established company?
Pyramid schemes are mathematically unsustainable, and every one of them eventually collapses — but it can take some time. Therefore, the more established the MLM, the more likely that it’s legitimate.
For example, Rodan + Fields is an MLM that began life producing products for sale in department stores back in 2003, and transitioned into a multi-level sales model in 2008. Simply put, an MLM that has been operating for several years is a safer bet than one that’s brand new.
- Do they offer high-quality products?
If the MLM you’re considering offers any actual product at all (rather than intangible services or things like mass-market ebooks), that’s a good start. Some MLMs, like Melaleuca, offer hundreds of products, and thus distinguish themselves from no-product pyramids.
But you should also take things a step further and really evaluate what the MLM is selling. Are the products/ingredients high quality? Does science support their claims? Does the company back them up in their policies? Is there an actual need for the product, and does the product effectively fill that need? Before you begin selling for the MLM, do some research and try some of the product for yourself. Additionally, online reviews (both from customers and sellers) can give you a more insider’s perspective.
- Are the reviews generally positive?
Speaking of reviews, checking various review sites online can also give you a better feel for the overall legitimacy of the MLM. Be warned, however, that even the best MLMs cannot promise success, and some reviews you encounter are going to be from sellers who simply didn’t find the success they were hoping for. That said, if you see an overwhelming ratio of negative to positive reviews, then that may be a red flag worth investigating.
With the more legitimate MLMs like Le-Vel Thrive, reviews are a big part of the recruitment process. These Le-Vel Thrive reviews are available on the company’s website, but can also be found via various other online sources — so, when you’re evaluating the MLM of your choice, be sure that your research is inclusive.
- Is it something you are passionate about?
This is the big one. If the MLM in question has passed the other tests and you’re still not sure whether you want to join up, then you might just not be passionate enough about the product. And that’s totally valid! No matter what some MLMs will tell you, if you want to find success as a direct seller, you’re going to have to work for it. Without the excitement and commitment to push you forward when times get tough, then you’re probably not going to find the success you’re hoping for. On the other hand, if you’ve got the passion and you want to share it with others, you could be perfect for the job.
If you’re considering joining an MLM, you first need to recognize the difference between multi-level marketing and pyramid schemes. But that’s only the first step. By following up with in-depth company and product research, you’ll be more likely to find an MLM that not only offers a respectable product, but also one that you can be excited to work with. Not every MLM is a pyramid scheme, and neither is every MLM the right fit for every seller.
But if you can find the right one for you, then you may just be on your way to achieving the American Dream.