Today, multi-level marketing or MLM is viewed in the same context as communism: while the concept looks good on paper, the reality is anything but.
However, there is a crucial difference between communism and this type of marketing. Communism, as an idea, is destined to fail. You simply can’t dictate the course of the free market, and you as a business owner know that very well. The concept of multi-level marketing, on the other hand, is NOT destined to fail. The reason most such companies fail is because of the people, not the structure itself.
In order to understand this better, let’s take a look at the concept behind MLM first.
Multi-level marketing is a form of direct selling, where you sell products or services outside of a store. In this case, however, income is not limited to just selling products, but by recruiting other people. Essentially, you create a downline of distributors apart from yourself. For every sale they make, you get a commission. This creates a hierarchy, where the higher up you are and the more recruits you have, the higher and faster you can earn. Because of its nature, MLM is also known as network marketing or referral marketing.
So what’s wrong with this setup? It sounds like a win-win scenario for everybody, right? Not the way some people play it.
Like any form of business, there are several bad practices than can ruin the profitability of network marketing. Here are some of the reasons why MLMs have gotten a bad rep in recent years.
Focus on recruitment over selling
For most direct selling companies, it can be very hard to sell the product. Not only do you have to meet a quota if you want to remain profitable, the nature of the products themselves make it hard to find customers. For example, health supplements appeal only to very specific people, not mainstream consumers.
As such, some members opt for the easier approach: rather than selling the product, they just recruit more members. This way, they can just sit back and relax while their downlines do all the selling. Even if the original recruiter doesn’t sell a single product, money will still trickle up to them in the form of commissions.
When this happens, the downlinks basically become “slaves”: they do all the hard work to recoup their investment, while supporting the hierarchy above them.
Bad positioning
A number of MLM companies also use unethical practices in their recruitment. New distributors are often told to target “easy prey”: friends and family members who couldn’t say no. While the distributor gets an easy recruit, the unfortunate recruit is then stuck with an obligation to either sell or find “prey” of his own.
Misleading promises
Finally, many network marketing setups choose to focus on the success of their earlier members, who reap all the commissions of those who joined later. They tend to gloss over the realities of joining: that you have to continually sell products or recruit talented members to earn a profit.
Thankfully, a number of established direct selling companies stay aboveboard by being upfront with their members. For example, ACN Inc., which provides lost-cost telecom, Internet and satellite TV services, actually tells potential members that “not all ACN Independent Representatives make a profit and no one can be guaranteed success as an ACN Independent Representative.”
In the end, the concept of network marketing is a good business concept that provides lucrative opportunities, but only if its members play by the rules and exert the time and effort to actually sell products, besides recruiting new members.