Multilevel Marketing – Big Money With Bad Math
If you’re interested in trying to work online from home, you might be wondering how best to go about it. There are many ways to make money online, and if you do a bit of research into the possible ways of doing so, you’ll likely encounter multilevel marketing, or MLM as it’s often known in the business. While multilevel marketing certainly has its appeal, you really need to understand what you’re getting into if you’re trying to make money online via MLM.
What’s the problem with multilevel marketing? There’s nothing inherently wrong with the business model; it was created to give participants added incentive to work hard. If you work hard in multilevel marketing, you’ll earn money. If you work harder, by helping other people make money with it, you’ll make even more money. The idea is for you to not only participate, but to encourage others to participate and to help them make money. The more of that you do, the more money you’ll make. Then it snowballs from there, and before you know it, you’re rich!
The Multilevel Marketing Process
Multilevel marketing is a commission-based system that sometimes resembles retail sales, such as with Amway, and sometimes involves affiliate marketing, where the product isn’t sold directly or isn’t a physical product. With direct sales, you buy a product at the wholesale price, mark up the price, and keep the difference when you sell it at retail. With affiliate marketing, you persuade someone to buy a product provided by someone else, and you receive a commission at the time of sale. The multilevel marketing angle for either of these business models is that you can also earn revenue if you recruit someone else to sell those same products. An individual that you recruit to sell the products will earn commissions from their sales, but you will also earn a small commission from any sales they make.
By encouraging members of an organization to recruit more people to sell, the company develops a large sales force and by offering commissions for both direct and indirect sales, the company keeps their sales team motivated. It’s exciting to make money from selling something, but it’s even more exciting to make money when someone else sells something. Someone else makes the sale, but you still get paid!
That sounds great, so what’s the problem with multilevel marketing? Is it illegal? No, the courts have ruled in the United States that multilevel marketing is not illegal…within certain limits. Those “certain limits” is where things sometimes get fuzzy, particularly when it comes to combining multilevel marketing and Internet marketing. MLM is legal, provided that the entire purpose of the enterprise is to make money from the sale of some sort of products to the general public. That’s the business model used by Amway or Melaleuca; the products are available to the public, but the salespeople can earn commissions from sales as well as the sales of any people they’ve recruited into the program.
The problems with multilevel marketing arise under a couple of different conditions, such as when:
1. The system involves the sale of products only to those who are members of the system, or
2. Compensation is more dependent upon recruiting new members to the sales force than it is upon making sales of products.
3. The program emphasizes how much you can potentially earn more than it emphasizes the products themselves.
Many multilevel marketing programs on the Internet violate one or two of these rules, including some of the better known ones, such as MOBE (My Online Business Empire) and Empower Network. Members of these two programs talk extensively about earnings potential, which can reach into the hundreds of thousands of dollars per year. Yes, there is huge money to be made in those systems, but neither of those programs actually sell products to the public. Their products are only available to members of the program.
Making matters worse is that these multilevel marketing programs require you to continually buy new and more expensive products in order to qualify for higher commissions. They call these products “licenses”, but they’re really just the exchange of money from newer members to older members. Whatever products are involved in these programs are just training courses that exist mostly to try to work around the laws that require multilevel marketing programs to offer some sort of product. There’s a legal term for these kinds of programs: pyramid schemes.
You would think that when you’re trying to sign up to promote a product of some sort that the product would get the most attention, and with most affiliate marketing programs, that’s the case. With a lot of multilevel marketing online, however, you’ll see the products barely mentioned while instead the videos or the text on the program’s Website will talk about compensation, a “forced matrix” payment system or how their members live the high life because of their membership in the program.
Real, legitimate multilevel marketing don’t do this; they’re going to talk about the products and how good the products are because selling the products are how you are supposed to be making your money. The multilevel marketing aspects of the program are supposed to be an incentive, and not the entire point. Why does it matter? Because with programs such as Amway, you can make money by selling their soap or skin care products. With programs such as MOBE or Empower Network, you can only earn money if you can persuade other people to join the program and pay thousands of dollars to do so. And what will the people you persuade to join the programs need to do to make money themselves? They’ll need to do the same thing – persuade others to join and pay thousands of dollars.
This is where the math begins to hurt you. It becomes pretty obvious that if we all try to join those kinds of multilevel marketing programs, we’ll all eventually run out of people to sign up as new members. What happens then? There’s no one to make sales to! That’s the fatal flaw with these programs and eventually, they all collapse when they run out of customers. Of course, those who joined the program early will likely make money, while those who joined late will probably be losers.
Multilevel Marketing Isn’t All Bad
If you’re going to join a multilevel marketing program, you need to make sure that you’ll be selling products to the public and not just to other members, and that your compensation will not be tied to whether you recruit new members or not. There are plenty of legitimate multilevel marketing programs, but if you’re new to online marketing, it might be hard to determine whether a particular program is legitimate or not. If you’re new or unsure, multilevel marketing is probably not the best way to start out. A more traditional affiliate marketing program would be a better way to go, as it doesn’t have the inherent risks that come with multilevel marketing. To learn about affiliate marketing, you might want to try a an affiliate marketing training program like Wealthy Affiliate, which can teach you everything you need to know from the ground up. It’s a better way to go than to throw away thousands of dollars on a multilevel marketing program that may never return any of your investment. You can even join Wealthy Affiliate for free.