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The Problem With Multi-Level Marketing.

Updated on February 11, 2016
moneyman77 profile image

I've been an independent financial planner for several years now. I try to keep my advice as objective as possible.

Stay Away From MLM "Opportunities"

"I'd like to invite you to a meeting to discuss a ground floor opportunity." Most of us have probably heard those words from someone at some point in our lives. It's very likely that this "business opportunity" is a multi-level marketing scheme. There's nothing wrong with being a supporter of free enterprise and capitalism, but network marketing has several flaws as a business system. Three of these flaws are: overpriced products, applying sales pressure to friends and family, and focusing on recruiting instead of selling products.

The first problem with multi-level marketing is overpriced products. Why would someone pay ten times as much for shampoo just so 10 people can make a commission? It's very hard to find a good deal on any product in a network marketing company. Most of us work very hard for every dollar we get. After we get those dollars we have to pay bills to survive. Paying too much for products out of pity for a friend or family member is not high on the priority list. It's much better to buy a reasonably priced item from an online or brick and mortar retailer. Dollar votes are important. It's best to buy products with the best value to keep those businesses going in our competitive system.

The second thing about network marketing businesses that is problematic is the pressure recruits have to apply to their "warm list". When a relationship or friendship becomes about recruiting or selling it can damage or destroy the relationship. It's awkward to constantly be pressured to sign up or buy something from a company that is unknown. Real businesses are well known and don't include pressuring friends and family. If you want something you either buy it online or in person. There are no family members or friends pressuring you to do so. This is probably the worst aspect of the whole multi-level world. Relationships are hard enough without adding a commercial aspect to them.

Third is the focus on recruiting to create "passive income". When you join a network marketing company you have two job hats. One job hat is salesperson and the other is recruiter. Most of us don't even want one job much less two. If the focus was more on selling products and less on recruiting then that would be a definite improvement to the business model. It's not though. The focus is almost always on recruiting. That is not sustainable. Real businesses sell products only. That's why they work. Even if someone joins a multi-level company they really should focus just on the product. There's everything right with wanting to create a passive or residual income. That helps free an individual from the daily grind. Network marketing is not a good way to do it though.

There are many more problems with the multi-level business structure than the ones listed above, but these are three of the big ones. For someone who wants to buy into a legitimate business system a franchise would be better. This takes building some capital to pay the franchise and startup fees. It would be better though to keep saving money until enough was accumulated to buy a franchise. A person could also just start their own business on a shoe string budget and build it up slowly. There's also nothing wrong with working as an employee and investing your money. Slow and steady wins the race. Multi-level marketing is very polarizing and is best avoided.

Passive Income Choices

What Is Your Favorite Form Of Passive Income?

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