What are MLMs and How to Recognize Them
by Carrie Hinkel on December 20th, 2007
An MLM, or Multi-Level Marketing, company works on a tier system, meaning that salespeople are enrolled to sell products and earn commissions from sales and from the sales of the people they enroll as salespeople in the company. Salespeople not only receive commissions from their sales and the sales of their recruits, but also their recruits’ recruits and so on (thusly, the “multi-levels”).
MLMs have gotten a negative image over the years because they operate similar to a pyramid scheme, which is illegal in many countries. While pyramid schemes make their money by signing on recruits and requiring them to buy a large amount of products (most of which will never be sold), MLMs make their money on products sold to consumers. However, since most pyramid scheme companies bill themselves as MLMs, therein lies the confusion.
Successful MLM Companies
There’s no doubt you’ve heard of Avon and Tupperware. Both of those companies operate as MLMs. And both companies have created thousands and thousands of wealthy salespeople. Of course, there’s been even more salespeople who have walked away empty handed – except for a pile of unsold products. Other big MLM companies are Amway, Pampered Chef, and Longaberger Baskets, most of which operate by having their salespeople host “home parties” or asking friends to host parties, and giving them free products in return.
Even The Body Shop is getting into the MLM business. They recently started a “home party” division of their company that is set up in the exact same way as an MLM.
The Problem with MLMs
MLM salespeople survive because they are fantastic networkers. They don’t mind asking (or pressuring) their friends and family to host parties or buy products; but friendships can quickly become strained or awkward if a salesperson can’t “take a hint” that a friend isn’t interested. Most people are not cut out for the kind of intense socializing, networking and pressuring that being a successful MLM salesperson requires. In order to continually make money, you have to continually have parties and sign on more and more salespeople. The “sit back and watch the profits roll in” part comes way, way down the line – and, for most, it never comes.
Most, if not all, MLMs require their salespeople to purchase a “starter kit”. In it is some of the products they’ll be selling or even demonstrating at the home parties. Typically these starter kits range in price from $100-$250.
Spotting an MLM
It’s fairly easy to spot an MLM business. Just ask yourself these simple questions: Do they sell their products at “home parties”? Do their salespeople try to recruit customers to be salespeople? If you answered yes to either of these, then it’s an MLM. Remember, MLMs thrive on salespeople, and they have a hard time resisting asking someone interested in their products to also become a salesperson.
There’s no doubt that being an MLM salesperson has worked for a good many people; but there is also a much, much greater number of people for whom it has not worked out. Knowing whether or not it will work for you means understanding exactly what is expected and deciding whether or not you feel comfortable in that role. You can also Google any company and find out what their past salespeople have to say about their experience.