Is a multi-level-marketing scheme (MLM) a good way to make money?

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You’ll have likely seen the invites on Facebook and Instagram or might have been invited to the parties. Tupperware made them famous, but now multi-level-marketing (MLM) schemes are big business and seemingly everywhere.

What is an MLM? 

There’s no easy way to describe what a multi-level-marketing business (MLM) is. People within MLMs may call it direct selling or network marketing. Typically an MLM will be a large organisation made up of hundreds of individuals selling merchandise and services such as beauty products, candles, cleaning products and books from home. 

An MLM can easily be identified by three things: 

  • You’ll have to buy a starter kit to join the MLM and become a seller. The kit will include some of the products you’ll sell, catalogues you can use to show products to potential customers and might include the cost of a personalised website.  
  • You’ll make money by getting other people to sign up to become sellers and purchase a starter kit. These are known as your ‘downline’ recruits. 
  • You’ll also earn a commission from sales. You usually also earn some money if your ‘downline’ recruits perform well. 

Often MLM sellers will use social media like Facebook to contact potential customers. Or, they might host ‘parties’ either online using Facebook or Instagram Live, or in real life where the aim is to showcase and sell their products.

Is an MLM a good way to make money?

It might be tempting to join an MLM, perhaps to earn some income on the side. Or you might view it as a stepping stone to starting your own business. 

However, to actually make money from an MLM is hard. You should consider: 

  • How much it costs to join the MLM (this might involve purchasing a pricey starter kit or purchasing stock upfront) 
  • How much you need to sell to earn back the cost of your starter kit 
  • How much you need to sell a month to start earning commission 
  • How much time you need to spend working to earn that commission. Is your hourly rate even close to minimum wage? 
  • If there is a minimum amount you need to sell each month to remain a representative of the MLM 
  • How much the products cost for customers to buy. If you were a potential customer would you think they were good value? Or would you look for better value alternatives? 
  • How many people are already representatives of the same MLM in your area? It might be hard to sell the products in your area if you have too much competition. 
  • Do you have to recruit people to the company to make more money? 
  • Are you willing to constantly pester friends and family to encourage them to buy your products or join your MLM? Will you have to make bold claims that haven’t been scientifically proven? 

Before joining you should be realistic about how much money you can make and how much time you will have to sink into it to make that money.  

It might be useful to talk to someone you know who used to be a member of an MLM. Or perhaps you could join a Facebook support group for former MLM members.  

You could ask your MLM recruiter these questions too but remember they will benefit if they manage to sign you up to the MLM, so you might not get entirely transparent answers.   

Beware of any MLM that makes unrealistic claims that you can ‘get rich quick’. If something sounds too good to be true, it probably is. 

You should also consider the impact it will have on your relationships with friends and family, especially if they will form most of your customer base. 

What’s the difference between an MLM and a pyramid scheme? 

Pyramid schemes are illegal. A pyramid scheme won’t sell a product or service. Instead, the only way to make money is to recruit other people to the scheme. It means most people who join a pyramid scheme will lose money. Only a few people at the very top of the ‘pyramid’ will make money. 

An MLM might have a similar pyramid structure, however, a legitimate MLM will sell an actual product and it should be possible to make some money (although not necessarily much) without having to recruit others to the MLM. However, in many MLMs it’s much more lucrative to recruit others than it is to earn commission from sales. 

What can I do if a friend or family member is part of an MLM? 

If a friend or family member asks you to buy their MLM products, it’ll probably be hard to refuse. Even if you think the products are overpriced, badly made, or they’re just not something you’d ordinarily buy, it’s tempting to still buy something to support them in what they believe is a legitimate business venture. 

However, all you’ll be doing is giving them false hope that they can be one of the rare MLM business success stories. 

Instead of buying products, be supportive of the reasons why your friend has decided to join an MLM.  

If their motivation is to boost their income, point them in the direction of resources such as our free Budget Planner.  

Encourage them also to sit down and calculate exactly how much money they make from sales each month, remembering to deduct any expenses including costs of purchasing the products to sell, and any tax they might have to pay on their profits. They might not be aware that they’re actually making very little profit, or if they could be losing money. 

If you think that your friend or family member is using an MLM to try and escape debt problems, then free help is available.  

See our guide on how to prioritise your debts to help them work out which ones to pay off first. 

Find free confidential debt advice online, over the phone or near to where you live using our debt advice locator

What are some other ways to make money easily? 

If your main reason to join an MLM is to increase your household income then consider using our free Budget Planner which will help you take control of your finances, make savings and cut costs. 

If you want some ideas for quick ways to make cash then MoneySavingExpert has some tips too.

And StepChange has some great ideas for saving money and increasing income.

Read also : What is Multilevel Marketing (MLM)? Scheme and Business Model

How does Multi-Level Marketing Business Model Work?

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What is Multi-Level Marketing (MLM)?

Multi-Level Marketing, sometimes referred to as Network Marketing is a business model, where distributors’ income is a sum of their own sales and percentage of the sales group they recruit.

MLM companies depend on distributors to not only sell their products but also recruit other people to become distributors below them. The more people a distributor recruits below him/her, the more money he/she makes.

The MLM business model relies mainly on a network of distributors who contribute towards the growth of a business. It involves three systematic strategies to make money:

  • Building and Management
  • Recruiting
  • Lead Generation

Besides, there are different types of network marketing business models – single-tier, two-tier, and multi-level. Here, we will see how multi-level marketing works.

How does the Multi-Level Marketing Business Model work?

Network marketing is spreading like a wave across countries. You might have heard from a friend or colleague about an opportunity to make extra income without investing or will likely listen about it soon. When you listen about it for the first time, you definitely get perplexed and wonder if it is true or not.

So, before you come up with any conclusion, let us understand the working of the network marketing business model.

MLM Business Model

The multi-level marketing business model has the lowest risk of loss. Thus, it is considered one of the safest business models. However, it mainly depends on the number of participants.

MLM business model functions on different levels. The company at first hires some distributors to start the sales.

Then, it encourages them to recruit more distributors. Every distributor that they recruit and every product that he sells brings the commission to the distributors in the upline. Hence, distributors get encouraged to recruit more and more distributors. This not only increases the sales of the company but also helps them save hiring costs.

Let’s understand this with an example!

Suppose that you join as a distributor in a network marketing business in India. MLM model inspires you to recruit more distributors under you and earn some percentage from the entire sales under your tree.

There are different levels or ranks like Silver, Gold, Diamond, and similar. The higher your rank, the more money you make. So, people who enter earlier make more than those at the bottom line.

Amway, Herbalife, and LuLaRoe are some of the examples of MLM businesses.

Multi-Level Marketing Schemes | June 12, 2019 Act 2 | Full Frontal on TBS

Different Stages of the Network Marketing Business Model

1. Joining the MLM Chain

An existing distributor looking to expand his network will approach you in one or the other way. Once you understand and hope to join him, you consent to agree with the contract of the principal company whose product you would be selling. Now, the distributor who recruited you will be called your sponsor.

Then, you will be given training either by the company or your sponsor regarding the product or on methods of selling it. Also, you will undergo training on how to recruit and develop your distributor network. Some or most of the companies require you to buy a starter kit in order to start sales.

Joining the MLM Chain

2. Retail Selling

Being in an MLM business requires you to focus on two essential things.

  • The first is buying a product for you and your family’s consumption. For instance, you buy products worth $100 every month, and you receive a discount of approximately 10% on the MRP. Thus, you will save $10.
  • Secondly, you can buy products for your friends or extended family and boost the sales volume. This leads to an increase in your discounts as per the slab.

3. Building Your Distributor Network

The next thing you can focus on is recruiting and developing your distributor network. Word of mouth can play a crucial role in acquiring new distributors. Once you begin talking about network marketing business to known and unknown people and encourage them to sign up as distributors, you become their sponsor.

As your network scales up, you start making extra income from the sales generated by the distributors under you.

For example, you have 5 distributors who place an order of $500 with you. You can purchase these products from your sponsor at a 20% discount. Your distributors, in turn, will get them from you at a 10% discount. Hence, you make a profit of 10% for each distributor.

As your network grows and the network under your distributors also grows, you start gaining higher discounts.

When your distributor network increase in size and you earn significant discounts, there comes a time when you get detached from your sponsor and start dealing with the principal company directly. As soon as you reach this stage, you get incentives, royalties, or bonus of specific amount/percentage as determined by the company.


Wrapping Up

Theoretically, the network marketing business model seems easier to run and more cost-effective. Nevertheless, recruiting sales agents who are excited about your company and product and share the same enthusiasm as existing agents is crucial. Ultimately, an energized and passionate workforce leads to more sales.

Moreover, nowadays, multi-level marketing software is available on the market that makes network marketing business pretty straightforward. Right from deploying a marketing strategy to streamlining the sales process, this software facilitates MLM businesses with varied features and functionalities.

If you have decided to profess your career in MLM business, all it demands is your interest and hard work. The more you invest your time and efforts, the better will be your network marketing.

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