Ok, let's jump right into the middle of this issue. There is essentially no difference between multi-level marketing and pyramid structures in theory. There, I said it.

"Pyramid" schemes differ in this one respect, however. The chance for a decent payoff is strictly impossible, because the grid, or structure, or pyramid that will generate a decent payout has to include like half the planet. When you dig into the tiers, legs, levels, etc., you have to ask yourself this question: how many people would I really have to sign up to make any money? And if the answer is half the US population, you're talking pyramid.

Multi-level marketing typically has some sort of structure, tier, levels, etc. as well. And this is where it gets confusing, real fast. Most of these opportunities have some sort of quota, whether a sign up quota, or more commonly, a usage quota ("you can't sell the widget if you don't use the widget" argument).

Then there is some sort of "downline" structure. This includes where people you sign up fit into the arrangement, determines your payout, that sort of thing. One MLM had a binary arrangement, and making sure you received top payout had a lot to do with learning the "ins and outs" of their particular system.

There is one other feature that is difficult to figure out, and that's the accounting. Commissions are not generally paid based on dollars of sales. Rather, most sales generate "points", and commissions are then based on a percentage of the "points" earned. I don't need to tell you that $1.00 does NOT equal 1 point. And the products you're incentivized to move most often pay the most in points. If you're lucky, the points earned can be up to 80% of the dollar value (i.e. $10.00 = 8 points).

That, to me, is the downside of the MLM system. I'll summarize the main points below:

1. You usually need to fulfill a quota (usage or enrollment) within a specific timeframe (monthly? quarterly?)
2. You need to master their particular downline structure (an essential skill in maximizing payout)
3. The conversion ratio from dollars to points, and commissions based on points earned versus dollars of revenue
4. Failure to "own" the product (more on this later)

These, to me, are the main sticking points.

In an upcoming hub I'll talk a bit about home-based business opportunities. The need for more people to diversify income (layoffs, outsizing, need for financial security) that provides flexibility in schedule is, to me, the main driver of the home-based business market. And this is typically linked with the MLM arena as the "best" way to have a home-based business.

So a focus on home-based businesses will be forthcoming, especially since there are a few different models, MLMs being just one of them: (an example of one of my off-line businesses structured a home-based business. I'll be using this one as one model in an upcoming hub).

One final note.

Dan Kennedy, in one of his books, mentions that the number one way to maximize your income from business opportunities comes from control over product, price, and delivery. MLMs do not fit this model, since you never control the product, price or delivery.

Here's a story to highlight this point:

I met an experienced "network marketer" recently at a business "after hours", and he was explaining his latest opportunity. In discussion he mentioned how a previous opportunity had gone bankrupt, after he had built a substantial downline.

Why?

Because the company making and delivering the widget became insolvent. End of opportunity.

To me, that's a problem. And it should serve as a warning as well.

Bottom line, before signing with any MLM opportunity, step back from the hype and look carefully at payout structure, downline "architecture," point conversion systems, and monthly quotas.

Don't get your expectations too high until you do your homework. If you have to sign up the state of California to make $1000 per month... well, needless to say it will be an uphill battle to make even a few bucks.

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