Confessions of a Multilevel Marketing Slow Learner

An estimated $5 billion a year is stolen from "unsuspecting and willing victims"under the guise of entry fees, basic start-up fees and business expenses, marketing tools, advertising and promotional fees, subscriptions, and educational books, audio CDs, and DVDs -- all for the dream of being a multi-level marketing, affiliate marketing, or network marketing success story.

I have to confess right here and now, I formerly was one of the "multi-level marketing (MLM) true believers" more than once in my lifetime. I also have to confess, that I've been an over-achiever in these endeavors and made a lot of money in these ventures. Moreover, I have to confess, that I also lost money and wasted my precious time in such undertakings, more times than I'd care to admit.

So as a slow learner, I'd like to share what I learned along a bumpy road of seeking "the dream" of not having to work for anyone else, being in charge of my own financial destiny, and making higher than average income.

Outing the "hands that used to feed me," isn't easy. It's all about the money and who gets it, and who doesn't in a business game that dictates the top percent and owners make the money, and everyone else who helped them get there, usually lose money. It's also about realizing the very fine line of difference is between:

• Multi-level marketing (aka Network Marketing)
• A Pyramid scheme
• A Ponzi scheme

More than that, to me, it is about a moral issue and about understanding what price you are willing to pay to earn your income. Therefore, ask yourself just who wins at multi-level marketing and who pays the price of the success of the few chosen ones?

My purpose in writing this hub article, isn't to name names or point the finger a specific companies, but to inspire others looking for extra income and a quick fix to financial woes -- to think before they leap and explore other ways to earn income.

First of all, I'm really good at sales. I've been accused of being able to sell binoculars to the blind and convincing them that they will finally be able to see. I've sold everything from real estate to used cars, cosmetics, health food products, software, information, electronics, vacuum cleaners, insurance, correspondence courses, books, collectibles, records, just to name a few. I have a degree in business. I have been a market research analyst for Fortune 500 companies, personally responsible making those companies millions of dollars.

That said, beginning in the early 1980s, I bought into various multi-level marketing businesses over the years. Some of them proved to be legitimate or quasi legitimate (depending upon whether or not you believe any MLM company is legitimate). Others turned out to be downright pyramid or ponzi schemes. I've been conned by the best, including by one who is serving a fifty year sentence for his antics.

Like many other true MLM believers, I wanted to be in business for myself. My reasoning was, that if I could make a lot of money for the people who employed me, I could and should make money for myself. I had good reasons for wanting to work from home and online (and still do). So that's what I did, more than once. And more than once, I became very disillusioned in the business model idea of multi-level marketing, as a long term career move.

It wasn't like I wasn't warned. Early on in the process of pursing my degree program, the multi-level marketing business plan was a hot topic with one of my professors. As he lectured about the eventual un-sustainability of all MLM businesses and taught us that 99.9% of the distributors would eventually lose money -- I sat smug and secure in the knowledge that I was already earning far more than he was and was marketing a great product. I just knew he was wrong!

Fast-forward eight months later, when the company started experiencing legal troubles and it became harder and harder to make any incomeoff this line of products -- I still believed in MLM. After all, I had the proof -- I had made money. I just chalked it up to the company growing too fast. Not realizing the full scope of the problems with that business venture, I quickly moved on, being careful to chose a company that had been around for a very long time.

Where is that second company today? Still in business, but banned from doing business in many countries, including this one.

I left this company long before it started having legal troubles. Why did I leave this still another profitable MLM company? After an initial great success, I found out that virtually everyone and their brother, in our community, were in this rapidly saturated market. The minute you would open your mouth to talk about the wonderful products (and they were wonderful) people would roll their eyes and get a little rude. Can't blame them, they were tired of hearing about all of that wonderfulness.

As my hub title suggests, I was a slow learner when it came to multi-level marketing and it took about eight different forays into this arena before I said enough. With each and every company, I made big money initially, sometimes doing extremely well even for months -- but in the end, it always worked out that no matter how hard I worked, the business simply wasn't sustainable for the long term.

What are you really buying and what really is for sale?

It may surprise the uninitiated, that many multi-level marketing companies are not only selling quality products, but that they are also selling them at competitive prices. This is one of the reasons why there is so much controversy about whether or not multi-level marketing is a legitimate way of marketing. It is very easy to believe in a great product!

However, I challenge you to think and dig deep, what are you really buying and what is really for sale? To discover those answers consider:

For those who have not tried this method of earning income -- This is a business plan that allows a company to market their products to consumers by recruitment of individuals who use their relationships for referral and make use of direct sales.Individuals are recruited as independent contractors and generally are nonsalaried. They may be called many names such as:

• Affiliates
• Affiliate marketer
• Associates
• Consultants
• Distributors
• Franchise owners
• Home-based business franchiser
• Independent agents
• Independent business owners
• Sales consultants

Regardless of what you are are called, you earn additional income aside from your own sales of product, both through your own customer base and through recruitment of others and their customer base (downline). Thus, building a sub-organization of distributors and recruiters. Multiple levels of participants can be receiving royalties from one person's sales.

If you are considering multi-level marketing, please consider:

• Taking time to investigate the company;
• Asking around and find out what the company's reputation is;
• Finding out what products does it sell;
• How does it back up it's product's claims?
• Are you asked to commit to selling a minimum number of products each month?
• Is the product(s) competitive with similar products?
• Who are it's targeted consumers?
• Are they a large group and can that group afford the product or service?
• What kind of money do you have to put up front?
• Do you have to commit to putting up additional money each month, in order to participate in sales?
• Are you required or penalized, if you don't recruit new distributors?
• Are the claims about the product(s) legitimate and supportable?
• Are the claims about this income opportunity with the company legitimate and verifiable?
• Are any testimonies verifiable?
• Find out who the company is owned by, what their reputation is, and everything you can about the key officers of the company;
• Find out where they are incorporated and follow through on checking out their status with all licensing agencies.
• Seriously take an objective look at all advertising and marketing material you will be using.
• Be familiar with the 70% rule. Know what it is, and how it applies to the company you might be considering investing in.
• Are you be asked to be part of an endless procession of recruitment?
• Are there minimum volume requirements?
• Are you expected to pay out of pocket for ongoing training in order to stay in the game?
• Are you being encouraged to make initial purchases and on-going purchases?
• Are there more than four levels?

One of the questions you should be asking prior to signing on to working with a multi-level company is: What type of compensation plan do they use?

Here are the five most common types:

• Binary Plans - This compensation plan limits the distributors to only two other front-line distributors. Anything more than two distributors, flows to lower distributors to insure compensation. This is a very limiting type of multi-level marketing.
• Hybrid Plans- This MLM compensation plan is a combo of both the binary plan and unilevel compensation plan.
• Matrix Plans- Limited number of distributors on first MLM level, from a distributor who actually buys the product.
• Unilevel Plans- The simplest of MLM compensation plans, the result is minimum sales requirements and unlimited commissions on a limited level of down lines.
• Stair-step Breakaway Plans - Mix of product sales volume and recruitment of distributors, who after a certain point may breakaway and form a new group of distributors. 

What it is and why is it illegal?

Pyramid schemes or scams are basically illegal because eventually they collapse, when the market is either over-saturated or they run out of "fresh blood" in terms of recruiting new recruits. A truer definition may be that a Pyramid scheme, is a business model that cannot be sustainable over the long term. A Pyramid scheme will collapse faster than a Ponzi scheme. Additionally, a Pyramid scheme exchanges money for enrolling other people, very often without any real product or service being delivered.

It's a Pyramid scheme/scam if:

• If they pay commissions for recruiting new distributors. That practice is illegal.
• It promises a "high rate of return." (similar to the Ponzi scheme).
• Failure to recruit will result in no profits.
• Those who recruit, benefit and receive some profits.

Many people and many legal entities believe all multi-level marketing organizations are in reality pyramid schemes. 

How is It Different Than A Pyramid Scheme?

The old time Ponzi scheme or scam is another form of Pyramid scheme, only this time it is an investment swindle. The supposed the "profits" are paid to the "early" investors, which in reality is money invested by later participants. In this scam, the person(s) who are running it, interact directly with all participants.

The moral dilemmas as I see it:

If a product or products are really as good as we believe them to be -- Why aren't they being marketed in stores and available to anyone? Shouldn't they be able to stand alone, without relying on recruitment of more sales operatives?

How wrong is it to recruit someone to sell a product or products, that you know have little chance in being successful in that endeavor? For me, this is one nasty little gray area of multi-level marketing that doesn't get discussed much.

You see many people recruiting their relatives, children, grandchildren, friends, neighbors, etc. to make themselves look more successful and to up their profit percentages. They openly know that the person being recruited has no skills, or sometimes any interest in selling the product or service. Sometimes, they go as far as to pay the sign-up or first purchases for their down line participants. They believe it gets them on the fast track. I believe it's a sales train to nowhere.

Are you selling a product(s) or a "dream?" Or another way of putting it is, are you destroying a dream?

Most importantly, are you deceiving anyone? Perhaps, are you deceiving yourself? While multi-level marketing allows some personal freedom in terms of being able to somewhat dictate your own schedule, you aren't really in business for yourself. You are following someone else's rules of business. You are dependent upon someone else to pay you and determine what you can say or do. You are dependent upon the success of the company you have aligned yourself with. If it goes down, so does your business and your income.

Beyond the moral issues is the fact that multi-level marketing today is ever changing itself in new and thinly disguised ways as it takes on the use of the Internet. Don't be deceived! Look before you leap!