Multi-level marketing, (MLM) is a method where a percentage of direct sales companies champion current distributors in recruiting new members to the business, then reward them for their recruiting efforts based on new members.
Those new members are then placed under that recruiting distributor known as the “Downline”. Existing distributors also earn sales through customers who buy company products.
For instance, Amway who sell a variety of products in the health, beauty and the home wares line of products, is a classic example of a direct sales business using the medium of multi-level marketing.
So What Is Multi-Level Marketing?
MLM is a game-plan where some direct sales businesses, motivate current members to go out and recruit new members.
Schemes of this nature exist by having many thousands of worldwide members, who, in most instances, generate very little income for their efforts, which clearly signifies as possibly being an MLM scheme.
Even though many MLM companies are legal, the Federal Trade Commission, (FTC), continues to closely monitor the operating activities of their business practices for being a legitimate or a pyramid selling scheme.
Evidence suggests that many operate on a very narrow bandwidth of being a legitimate business.
MLM How Do They Work?
The primary ingredient with MLM businesses is to sell product or services using a chain of people. Once you have joined an MLM opportunity, they will most likely refer to you like one of these titles, “Distributor”, “Participant”, or “Contractor.” However, in most instances, they are commonly known as distributors.
These distributors will then go about applying the same concept of selling to other people, usually family or friends or on person to person basis. Basically, it’s a direct selling process where it can be operated from your home or other peoples house and even sold online.
According to MLM companies, there are two money making choices
- Sell the concept into the retail world, mainly to customers who are not affiliated with the MLM opportunity.
- Earn commissions by recruiting new members into the MLM business. Also, you’ll earn a commission on all their sales.
As the process unfolds, from your recruiting efforts. And, provided the system is repeated over and over you earn a commission on all of their sales. That’s the beginning of you’re now having a “Downline”. That, in a nutshell, is “Multi-Level-Marketing” or similarly, “Pyramid Selling”.
How A Pyramid Schemes Works
Pyramid schemes are aptly named, as they bear a resemblance to that of a pyramid structure. Both start with a single point on top, then gradually widens toward the bottom.
For example, Let’s assume a founder named Bill starts a brand new scheme, and he sits alone at the top of the pyramid, or in other words, he holds the number “one” position.
Assuming Bill knows his stuff really well, so he recruits 10 people directly below him, and, they are now his second-tier members. Every new member to join needs to pay Bill a cash payment for the privilege of entering his scheme.
Naturally, every buy-in fee funnels its way directly back to Bill. Those ten new members he joined, now need to repeat what Bill did when he signed them up. Let’s assume that all happened, so now there a further 100 new members. They all need to pay a joining fee precisely the same as what the first ten did. And, “YES” a percentage of their joining price finds its way back into Bill’s pocket.
The system is then rinsed and repeated over and over.
At recruiting drives that are regularly held, they launch a hard-sell process, and for those who are convinced or bold enough to commit; And, by all accounts, recruiters receive a helpful little cash injection from those new recruits who now sit below them.
Over some time member pools inevitably run out of steam and the legs begin to dry up, resulting in the scheme folding.
Like a revolving door, pyramid schemes come and go, and the sad irony, a vast majority of grass-root distributors, are left empty-handed, while those at the top of the tree walk away with their pockets stuffed with cash.
It’s well-known pyramid schemes predominately rely on revenue-raising through fees and consistent signing of new members. If you delve into their history, you’ll uncover that the sale of real products/services with any fundamental value are quite rare.
Multi-Level Marketing – Pyramid Scheme
Generally, MLM is an ethical run of the mill business performing within the confines of legal practice, distinct from pyramid schemes. They use a model that revolves around the sale of real products/services. Furthermore, active members are not dictated into closing deals, to generate income by recruiting new members that will sit below them in an overall structure.
However, not to be fooled as some MLM companies are almost identical to that of a pyramid scheme. Both involve or have a hand in the sale of printed articles with little to no value, with the norm usually based around educational programs or studies.
Such are these manipulative MLM schemes that they apply underhanded tactics by coercing raw recruits, and others to buy rubbish products at an outrageous cost; And, encourage them to use the same tactics to the next lot of potential new and upcoming members.
Here Is a True Pyramid Scheme Example
A massive pyramid scheme swept through Canada in 2008, promising citizens a chance to get rich by selling low-cost travel club membership plans. For applicants to qualify needed to purchase membership first, and the cost per join was a staggering $3,200. Surprising as it may sound, more than 2000 people parted with their hard-earned to buy into the scheme. The simple reason was, they were promised $5,000 for each similar membership they sold.
Low and behold, what they failed to tell these folks profits can only be accomplished after they have reached a $100,000 in sales. And, of course, that meant selling a minimum of 30 memberships. What they conventionally failed to mention, such a target was almost impossible to attain, because the Canadian economy was already in a downward spiral; And, more than likely there was no way that folks were in the mood to part with such large sum of cash.
Those people who were conned into buying into this fraudulent scheme filed a class-action lawsuit. Fortunately for them, they were lucky in getting back their investment; While at the same time, the system was immediately wound down.
Should you be giving thought to a business venture where it involves the selling of products to your family or friends,
while at the same time need to commence recruiting other people to join, the same as what you’re thinking of doing.
Or, you’ve been approached by someone that you know about a great home-based business opportunity, where you can organise a meet with a few other friends and host a small party where they have the chance to buy products; And, you get a percentage of all the sales.
You liked the concept, so you approach your friend to find out how you can get involved and have your other friends do the same as you have just done. That is how multi-level marketing (MLM) gets you hooked without even having to tell you that the business is MLM marketing.
Another line they will use, a work colleague covertly leaves an Amway or Avon catalogue on your workbench, with an attached Post-It sticker asking that you, “Please Pass On” to your other workmates after you have completed your order.
Maybe, you’ve received an invite to an online Nu Skin party on social media where prizes and some goodies will be given away. More likely, that person is in some way connected to multi-level marketing. The covert tactics they use look on face value entirely legitimate, but in fact, are more likely running a business that is similar to pyramid schemes, and, they are illegal.
Be very careful, because unbeknown to you, you could seriously be linking yourself with an MLM business.
Not only that, you could be getting yourself involved in an illegal pyramid system without realising you’ve entered a dishonest venture. Worse still, there’s a real possibility, you could lose all that you have invested, or even be left with unwanted debt.
If you are confronted by these types of scenarios, then I strongly suggest, do some research about the business you’re interested in joining. Test the water, find out the legitimacy of that company, before committing yourself. So be careful in not letting yourself become involved without first running a few checks.
By the way, Nu Skin is an MLM company that sells anti-ageing skincare products and nutritional products.
The business was founded in 1984 in Utah. In the early 1990s, the FTC investigated the company for making unsubstantiated claims about its products; the company eventually had to pay a $1.5 million penalty.
The subtle difference between the two lies in how the representatives primarily earn their money. If it’s mostly from selling products and the products sold by those you’ve recruited, it’s likely to be a legitimate business using the multi-level marketing system.
Whereby if the primary interest is all about recruiting members, and, with what products that are sold are usually at exorbitant prices with the smallest amount of return; Then, it’s very likely it is a pyramid scheme of sale.
In many countries, pyramid schemes are illegal, because profiteering using unethical practices is just not on.
Their modelling of profiting by utilising a network effect that traps individuals into recruiting their colleagues to join is a despicable underhanded approach for everyone involved and can ultimately strain relationships.
Investors (LIKE YOURSELF) should exercise caution with such schemes or avoid them altogether.
I remember only too well my previous experiences with MLM, and I can say it left a nasty taste in my mouth.
Because I had been trapped into a false sense of belief and lost a substantial amount of money, I gave online marketing a wide berth.
When I eventually did work my way back into the online marketing world and having previous first-hand experiences with MLM. I was fully aware of the many pitfalls that exist within the industry, so, I went in with my eyes fully open.
I set out with a purposeful mindset where the research needed to be exhaustive and fine-tuned if I were going to come up with a handful of genuine possibilities. At this stage, I was more determined than ever not to make the same mistakes as before; Because I wasn’t going to fail again.
Getting down to one or two was even a more significant challenge. So, continuing with my strict mindset and not deviating, I adopted an evaluation process that was rigorous and aimed directly at benefits and features that were comparable to my expectations.
- Track record
- Business with ethical standards
- Legitimate online marketing platform
- Step by step training
- Latest training material
- Internal help from lack of understanding
- Technical Site Support
- How long they have been in business
- Proven strategies
- A platform that could satisfy all of the above
The decision, in the end, was a no brainer. My research uncovered a platform, “Wealthy Affiliate.” It fulfilled everything that met with my evaluation criteria.
- Over the past 15 years, they have a proven track record that speaks for itself and hard to overlook.
- A platform that enjoys a “Gold Star” for ethical conduct that has existed for several years.
- The legitimacy as a marketing platform. Wealthy Affiliate rose to the top and was, in my opinion, bounds ahead of others.
- The lessons were a step-by-step task-based process and in manageable pieces from the beginner level to entrepreneur.
- Training modules have been formatted in a way, as you progress with the training, so does the training modules.
- Something that impressed me, the state of the art training material that is current and not dated as most others.
- They have a 24/7 365 day internal support system where every member supports each other in solving problems.
- Technical support system for any of those techy problems. Something, every affiliate marketer faces from time-to-time.
- What really impressed me. Wealthy Affiliate has now been an online operative since 2005. That alone speaks volumes of the platform.
- Since the launching of Wealthy Affiliate, they have trained many thousands of affiliate marketers to an entrepreneurial level.
- Another point worth mentioning and hard to find elsewhere, all current wealthy affiliate entrepreneurs readily help those who experience difficulty with understanding certain parts of the training.
That is why I became an active member of the leading online affiliate marketing platform. Just like many, thousands did before me.
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