Full disclosure: I am NOT an affiliate with any MLM business I mention in this article and no one I even know benefits from the links provided.  That being said, first things first.  It is important to distinguish between and MLM (multi-level-marketing or affiliate marketing) and a pyramid scheme.  They are simply not the same.  An MLM is a legitimate and legal business that chooses to market its product in a non-traditional way.  They use a network.  Pyramid schemes are scams.  Oftentimes the two get mixed up because pyramid schemes often mascaraed as MLM’s but to be an MLM, a company has to have a legitimate product.  For instance, Amway is a popular MLM business that has a multitude of products that people buy.  They sell vitamins, dish soap, bottled water and so on.

How does a MLM business work?

In a standard business, products are marketed through advertising, oftentimes physical locations and/or salespeople.  Instead, MLM’s recruit people to sell their product and pay them a commission on these sales.  Not only that, they pay a commission on every sale generated by anyone these folks recruit.  Let’s use an example:

Let’s say you join Herbalife.  As an associate, every time someone buys a product from your website, you get a commission.  Thus, you have an incentive to promote your site.  Better yet, if you get someone else to sign up for Herbalife, you also get a commission every time someone buys something from THEIR website, including anything they themselves buy.  Now, imagine you recruit 10 people.  They want to make money, so they get people to buy products from their website but that also gives you a commission.  So now you make money every time someone buys from your website AND from all 10 of your recruits’ websites.

Now, imagine that all 10 of your recruits each find 10 recruits, again, because they want to make more money.  That’s 111 websites that you earn a commission on every time a purchase is made.  You can see how, at least in theory, you could have thousands of little commissions that could add up to a monster income.

The religion of MLM’s

Although MLM’s are legitimate businesses they have a poor reputation because they are somewhat ‘cult-like.’  They frequently hold meetings in which they try to get their recruits excited about being successful and thus finding more recruits to buy their products. Honestly, it is far more emotional than rational.  This gives the appearance of illegitimacy because it might look more like a religion than a business, but it serves the company well.

Think about it!  If they ‘pump up’ their recruits to find additional recruits, the company sells more product and thus makes more profit and since none of them are actual employees, it costs the company virtually nothing to do this.  In fact, one of their ‘top’ recruits is almost always the one that hosts these events because he/she stands to make more money and thus is happy to do it!  Imagine the cost of an event like this for a ‘regular’ company.  They would have to rent the room, sure, but the real expense is that they’d have to pay the hundreds of employees that would be attending.  MLM’s are paying nothing to any ’employees’ but they are getting people excited and soon the profits start pouring in.  It’s quite ingenious, really.

If MLM’s are so great, why doesn’t everyone join one?

The sad fact is that most people fail at MLM’s.  You really have to be a salesperson to make any real money and many of us simply are not.  That’s part of the reason they try to get people excited; so, they’ll tell their friends and family about it and sign them up.  After all, it doesn’t really matter all that much if people fall off the bandwagon if more are jumping on.  Most people get excited and start buying the products, which makes the company money, but they ultimately quit.  But in the meantime, more recruits have been made (and spend money) and every now and again, one sticks it out for the long haul.   So, over time, most people fail at MLM’s, but the company does not lose any money because the very nature of the MLM puts the risk on the recruit, not the company itself.

It sounds kind of like I should NOT start an MLM business

For some, an MLM business means millions.  Sure, most fail but if you are NOT ‘most people,’ then being part of an MLM could mean huge success.  It takes time, no doubt, and there will be plenty of rejection, but if you are OK with all that, then go for it.  Best of all, you can do any MLM business as a ‘side hustle,’ so it’s not like you have to quit your day job (at least until you start making a ton of money).

Just keep these ideas in mind if you decide to take the plunge:

  1. You don’t have to be a born salesman, but recognize that any MLM business is more-or-less a self-appointed sales job.  You are selling the products, but more importantly, the opportunity.  If you invite these challenges, then you might be ready for an MLM business.
  2. Do something that interests you.  If you are fat and hate exercise, you probably shouldn’t join Advocare (a supplement company).  You can’t sell what you don’t personally endorse.  But perhaps you are interested in law, maybe your even a lawyer, then Legal Shield, a legal ‘insurance’ company might be more to your liking.
  3. Lastly, be teachable.  Virtually every MLMer that joins and tries to do it “their way” ends up as a statistic.  The experts know how to find recruits, sell products and succeed in the business.  Find someone that is making more money than you and do what they do.  Once you surpass them, look for the next guy who makes more than you.  Pretty soon, people will be asking for your advice!

If you can do all this, and be at peace with it while having a determination to succeed, you may just might become the next MLM success story!  If not, perhaps investing in the businesses of others is more of your thing.