Paycheck Chronicles

Good & Bad of Multi-Level Marketing


If you're looking for a flexible job, there's a great chance that you will be approached by someone about a multi-level marketing company.  Is this just the business you have been looking for, or is it a great way to spend money and not make much?  Well, that depends.

Multi-level level marketing is a business structure where sales consultants are rewarded not only for their own sales, but also for the sales of people that they have recruited to join the business (often called their "downline.")  Multi-level marketing is also called multi-level distribution, MLM, referral marketing, or network marketing.  Names you might recognize include Pampered Chef, Scentsy, Oragami Owl, Avon, Tupperware and Rhodan & Fields.

Multi-level marketing companies typically use distributors or sales consultants to sell goods or services.  When you sign up, you earn commissions from your sales, and you can recruit others to join and earn a portion of their sales, as well.

Multi-level marketing is attractive to many military spouses and service members because of the flexibility of the job and the opportunity to purchase products at discounted prices.  Participants are independent contractors for tax purposes, meaning that they are responsible for their own expenses and taxes.  Unfortunately, numerous studies have shown that most multi-level participants make very little money, if any.  According to Robert Fitzpatrick, a business consultant and multi-level marketing expert, "Ninety-nine percent don't ever make a net profit."

Also, be aware that while most multi-level marketing companies are legitimate business, some multi-level marketing plans are actually illegal pyramid schemes.  The difference is when the income is primarily derived from actual sales of a product or service, or whether income is primarily derived from recruiting new participants.  It can be very difficult to tell the difference between legitimate multi-level marketing companies and pyramid schemes.

If you are thinking about joining a multi-level marketing company, ask these questions about the company:

  • What are the products?  Are they quality products at fair prices?  Avoid products with questionable merits or excessive prices.
  • How long has the company been in business?  What is its general reputation?  Every company has complaints - how are they handled?
  • Is there a minimum level of participation to remain actively involved?  Are you comfortable with that level?
  • How is compensation structured?  The majority of your compensation should come from your actual sales.
Then, ask these questions of the person who is trying to recruit you (and any other participants you can find):
  • How long have you been involved with this company?
  • How much money did you make last year, after expenses?
  • How much time did you spend working on your business last year?
  • What were your annual product sales last year?
  • How many people have you recruited to work under you?
  • What percentage of your income came from those you recruited, and what percentage came from your downline?
Many current and former participants in multi-level marketing companies are thrilled with their experience, it just usually isn't for the money.  Both my sister and I have kitchens stocked with Pampered Chef products, bought at a discount during our time as Pampered Chef consultants.  Some people enjoy the opportunity to get out of the house and make new friends.  Others enjoy the challenge of being a small business without having to deal with the product management side of things.

Understanding multi-level marketing can help you find an opportunity that offers real value and works for you and your family.  Asking tough questions and having realistic expectations will increase the chances that you will be happy if you choose to join a multi-level marketing company.

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