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Multi-Level Marketing: Big Scam or Big Money?
by Liz Fretz
If you spend five minutes searching the Internet for a work at home job, you will run into several hundred (if not thousands) of Multi-Level Marketing (MLM) schemes. MLM has been around since the dawn of time and depending on whom you talk to - it's the best things since sliced bread or it's a total rip-off devised to steal your money.

So . . . which is it? Actually, it's both. It all depends on the company and the product that you decide to represent.

To understand how MLM can be both a scam and a legitimate opportunity lets review how MLM works. A company has a product or service that they want to sell. So, to recruit their sales force, they offer salesman a percentage of the selling price of the products they sell. This is known as a commission. This is common in most sales situations. We all know that car salesman and most full time salesman in department stores work on commission. With MLM the company asks you to sell their product or service, but they also ask you to recruit new salesman. To provide you with an incentive to this, they also pay you a commission on the sales of the people you recruit and the people they recruit and so on down the line. (Hence the term "down-line".)

In order to get started in a MLM program, you must have a sponsor or up-line manager. Your sponsor will make a percentage of all of your sales. In return for this, your sponsor or up-line manager will provide you with training, support, and information about how to get started.

There are many legitimate and famous name companies that offer their products via MLM. Just to name a few . . . I'm sure you've heard of Avon, Tupperware, and Fuller Brush. All of these programs are MLM. They are legitimate and you can make money as a representative for these companies. But it isn't easy and it surely doesn't happen over night.

MLM becomes a scam when sponsors try to lure people into this type of program by making outrageous claims about the amount of money you can make. They may make other equally outrageous claims about how easy it is to make money - saying things like you can "make money while you sleep" because your down-line is doing all the work. But that's the scam of MLM - nothing is ever that easy. MLM also becomes a scam when the only product is the pyramid itself. If all you are doing is recruiting new people into the scheme, then you should be careful about getting involved.

So, is MLM right for you?

Before you sign up for a MLM program, there are some questions you should ask both the company and yourself.

  1. Is this a product I feel comfortable selling, enjoying using and feel enthusiastic about? If you don't like the product you will have a hard time selling it. Also, make sure there is a product to be sold. Selling "vaporware" or "virtual products" are almost always a scam and you might get pinched.

  2. Is the company reputable? If you are unfamiliar with the company check with the better business bureau and other agency to make sure the company hasn't had past problems and their honest.

  3. What kind of support will your up-line provide you?

  4. Do you have to recruit new sales people to make enough money to meet your goals? If you're just interested in selling the product and don't want to spend the time recruiting and training your down-line, will this product still work for you?

  5. What are your start-up costs? Most MLM programs require that you buy a certain amount of product to use as demos. Also you may have to purchase your own supplies such as catalogs, samples, mailers, web space, etc. Find out exactly what you must purchase, how much it will cost you, and how long it will take to get your supplies.

  6. What are your monthly costs to run the business? If you have to buy catalogs, web space, and other perishable/ renewable items, how often do you have to buy them and how much will it cost you each month? Avon requires you to purchase your own catalogues and each catalogue campaign is just a few weeks, so you must buy catalogues on a regular basis. Remember, this will affect your profits.

  7. Are you expected to maintain an inventory? Some companies require you to keep a large inventory on hand or to make a minimum purchase regardless of your sales. You need to understand these requirements and how they will affect your profits.

  8. How long does the company anticipate it will take you to build your customer base and down-line if you follow their plan? Of course real life always varies from the estimates. You may put more or less effort into your business than they expect. But you should have some idea what they consider the average lead-time to build a good business.

  9. How difficult is it to leave the company? If you decide you no longer want to be a part of this business, how do you exit the company and what happens to your down-line? Are there any costs associated with leaving?
Multi-level Marketing has a bad rap because so many of MLM companies are scams in nice wrappings. However, if you join up with a reputable company and work at building your customer base and your down-line, in time you can make a decent profit.

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