Multi-level marketing is a popular way to make money from a home business, as demonstrated by the Herbalife MLM empire. But is MLM a smart play for you?
There has been a lot written about Herbalife recently. The multi-level marketing giant has come under fire from a hedge fund manager, asserting that Herbalife is one big scam — even if the company is listed on the NYSE.
Herbalife isn’t the only direct sales MLM company out there. There are tons of home business “opportunities” in the form of multi-level marketing. In fact, I get a front row seat to many of them. To me, Utah seems to be the MLM capital of the world, with stay at home moms hawking products from Scentsy to Lia Sophia to Pampered Chef to Usborne. When I say that I have a home business, the immediate assumption here in Utah is often that I’m involved in MLM direct sales: “Really? What do you sell? My wife does ________.”
While it can be tempting to make money from home with the help of a home business system, it’s important to be careful. Any home business takes a lot of time and effort, and these MLM direct sales programs can end up being more of a money pit.
Why are You Selling these Products?
Before you sign up for a multi-leveling marketing program, you need to figure out why you plan to sell the items. For many of the people I know, the real reason they are distributors is because they want discounted products. My mom never made much money as the neighborhood Avon lady, but she did enjoy getting her cosmetics on discount.
Most of those involved in MLM selling in my area get their products at a discount, and if they make $50 or $100 extra bucks each month on the side, they are happy. There are product parties (that I never attend), but there aren’t a lot of recruiting efforts by these ladies to find “team members” to boost their earnings down the line.
It’s when you start thinking that you want to use MLM as a business model that things can start to get a little sketchy. Actually making money in direct sales is difficult and time-consuming. And you might have to buy a great deal of product in order to move forward. In the end, as Pound Foolish author Helaine Olen pointed out in a Forbes article about Mary Kay, many of those who “invest” in MLM home business “opportunities” just end up with a bunch of product and high credit card bills.
There are success stories. There’s a lady driving a pink Cadillac around town. However, her husband had the resources to support her vast purchases of Mary Kay inventory; no debilitating credit card debt for her. Unfortunately, with systems like the Herbalife MLM model, distributors are often pressured into using debt to buy a great deal of inventory up front. And many of those who do so are desperate, looking to earn extra income for their families.
MLM: Too Good To Be True?
While MLM companies are usually legit in a legal sense, it’s important to understand that many of them make promises that are too good to be true. You are told that it’s easy to make a lot of money in direct sales, and that all you have to do is hold a party, or “invest” in a system. You are told that you can reach “management” level by purchasing large amounts of inventory.
And then you are set to work recruiting others to be distributors. Some MLM companies are more into recruitment than others. Personally, I think it’s best to be wary of any company that puts a great deal of emphasis on recruiting “team members.” Any MLM company that focuses on encouraging you to recruit rather than teaching you how to better sell the product should be approached carefully.
Yes, there are ways to make money with MLM programs. However, it’s not as easy as plunking down $5,000 for a large inventory and trying to get a few friends to do the same. To really make money in direct sales, you need to have a business plan, and you need to work hard at selling the product and turning a profit. You can’t buy into the positive-thinking messages and hype that many MLM companies use to get you fired up. Any home business requires hard work and dedication to make it work.
What do you think of MLM companies? Legit? Or scams?
Herbalife, MLM, and Scams: Is MLM Right for Your Home Business?,
I don’t have a problem with MLM companies and have seen some people make a ton of money sellling good products. BUT (and with everything, there’s a but, right?) realize that if you’re going to get into MLM that it’s a LOW BARRIER business. Whenever everyone can do something, you’re going to have a ton of competition and are going to have to work really, really hard to make any money. Expect a ton of rejection and disappointment.
Good point! And one of the sad realities of MLM is that you are recruiting your own competition. The more people you recruit, the more you have to keep recruiting, because all those people will be selling to your potential customers. It can turn into a vicious cycle.
From the few MLM encounters I’ve seen, the emphasis is usually on recruiting new suckers – I mean members. If your business model relies heavily of convincing others to convince others to convince others to join, it is a scam. It’s not about moving product and servicing customers; it’s about passing the buck and hoping other people’s foolishness will make you rich.
I think that’s a good smell test. Is the focus on selling a product? Or is it on recruiting people who are supposed to make you rich later?
Robert Kiyosaki believes in MLM. I think some MLM are not scams, there are many success stories we heard. Some people also build their wealth through this business set up.
No one is disputing that some people can earn a living using MLM. However, it’s not easy as many representatives make it sound, and it’s important to be aware of the realities involved before you get started.
The problem with MLM that focus on recruiting is that you have untrained people training untrained people. They have no experience and then the give advice based on their non-experience (kind of like the advice you give at the end). This is where the wild claims of money for nothing come in, “I got in yesterday and you can make a million dollars a year just sitting at home, mailbox money!” If you are going to take advice in any area of life, take advice from people who have succeeded. Find a mentor with success and follow them.
Most people who get into MLM are looking to make a lot of money and do no work. Sometimes they’ll buy a lot of products with the expectation of doing something, but end up sitting at home watching American Idle. MLM takes a lot of persistent work to have success and most people aren’t willing to put in the work.
There are some MLM companies that, no matter how hard you work, will have a hard time finding success. I’d say about 90% of the MLMs out there are a waste of time unless you are willing to dedicate everything to it.
Miranda, I’m sorry, but unless you have “really made money” in direct sales, I find no reason to follow your advice: “To really make money in direct sales …” You may have valid advice, or you may not, we don’t know because you do not have the fruit on the tree.
I agree with Miranda that if the MLM company focuses too much on recruiting members you should avoid it. The people who I know that succeeded in MLM are hard workers and persistent in selling products. With the ability and skill to sell products or services you can achieve your income goals. Yes, join the company with good and interesting products that will teach you how to sell them, and you will get better with time.