Is MLM a Dirty Word?
If you want to work a bunch of Internet marketers into a frenzy, just bring up MLM, or multilevel marketing. MLM is a popular business model these days, and you don’t have to go too far in any direction to find someone trying to persuade you to join them in their MLM enterprise. They’ll tell you that you can “be your own boss” or “write your own ticket” or that you can just out and out become rich if you join them in their MLM system.
It’s true that there are a number of people who have become financially comfortable through MLM. It’s also true that there are lots of people, and far more of them, truth be told, that have lost a lot of money by investing in an MLM scheme. Surely the truth about multilevel marketing must lie somewhere in the middle, right? Yet, aside from those who have become wealthy, few people have anything good to say about MLM. Why is that?
What MLM Is and Is Not
Multilevel marketing seems, on its surface, to be a pretty good idea. At its most basic, MLM is an affiliate marketing system. You join a company as an affiliate and you agree to promote the company’s products. If you make sales, you get a percentage. In practice, this can involve physical sales, such as selling Amway products, which you actually store in your home or office and physically deliver to your customers. Or it can consist of selling information products online, which the buyer can download without you having to actually deliver the product yourself. The difference between traditional affiliate marketing and MLM is a simple twist – with affiliate marketing, you only make money from products you personally sell. With MLM you get that, but you can also earn money from the sales of other affiliates that you have personally recruited into the company.
This “twist”, used by many respected MLM companies such as Mary Kay and Amway, is intended to provide additional incentive for the affiliates. They’re going to help the company grow by making sales, but they’re also going to help the company grow by recruiting other salespeople to help the company grow even more. MLM is a business model that’s been used for at least a half a century and it works well…most of the time.
So why does MLM have such a bad reputation these days? It’s not because of the business model, which has traditionally involved selling products to the public with recruiting new sales people as a sideline. Rather, the bad reputation that MLM has these days has to do with the fact that many multilevel marketing companies no longer rely on selling products to the public as their primary business model. Many modern MLM companies have pretty much given up on selling products to the public at all; the products are now sold only to “members”, who are, in fact, sales people for the company. Instead of selling products to the public and recruiting salespeople to do the same, many MLM companies now ask their salespeople to recruit more salespeople, but now virtually all product sales are made to the new recruits.
A good example of this is the popular program MLM program known as MOBE. MOBE is a multilevel marketing program with products that are priced anywhere from $49 to $20,000 or so. While the less expensive products (those under $150) may be sold to the public, all of the more expensive products, ranging from $2000 to $20,000 or so, are available for sale only to members. Not only that, but in order to receive commissions for sales of the dozen or so products in that price range when you sell them, you must first buy them yourself.
It’s the change in emphasis from selling products to the public to recruiting new salespeople to the company that has given MLM a bad name. In fact, most U.S. states have laws that actually make such programs illegal. If you are promoting a product that requires you to prioritize recruiting new members over making sales of products to the public, you are likely breaking the law in most of the United States. That hasn’t stopped programs like MOBE from growing, as the program itself, and many of the more successful members, live outside the U.S.
Why are these programs so popular? Largely because of the huge potential for profits. With products priced at up to $20,000, you can earn nearly $10,000 for making a single sale. That’s a lot more lucrative than earning $20 or so from selling a Clickbank product as an affiliate. The sales pitch offered by successful members of high-ticket MLM programs always emphasizes the amount of money that you can potentially earn as a member. Little attention is paid to the fact that very few members of any such organization actually make those kinds of sales, or of the fact that in order to even qualify to earn those kinds of commissions, you must first spend about $40,000 to buy those products yourself.
Of course, many people are lured in by the talk of “big money” in these MLM scams, and they buy those expensive products in order to qualify to resell them and then they discover just how difficult it can be to sell a $20,000 product. Think about it – how many people do you personally know that might be willing to buy a $20,000 information product? Probably not a lot. In fact, there aren’t all that many people worldwide who are both interested and capable of buying such a product, and every time someone does buy such a product, there’s one less person left on the planet who can do it.
Take to its logical conclusion, if everyone who joined an MLM program like MOBE were successful, we would eventually have an entire planet of MOBE salespeople, with no one left to buy! Of course, it doesn’t work that way, and the way it usually works is this – someone signs up and pays a couple of thousands of dollars to quality to sell four-figure products. Then they make an effort to sell them and discover that it’s really hard to make sales of such products. Then they eventually give up. They’re out a few thousand dollars and quite a bit of time, but the person who recruited them in to the program got a huge commission, just the same.
MLM isn’t a bad idea, in the abstract. I use an autoresponder system that has an MLM benefit. I pay them for their service, which I use, because it works and it’s fairly priced. But if I recruit someone to use it and they pay every month, I get a percentage of the amount they pay to the company. The difference between that and programs like MOBE is this – anyone can buy the product and use it without being asked or coerced to recruit other people to sell it. The problem is that most MLM opportunities these days don’t work like that – they’re all about recruiting people. And that’s why MLM has a bad reputation.