“I’ve got an incredible new business opportunity to tell you about where you don’t have to work and you can make millions!”
“Yeah, all you have to do is sign up 10 people, and then those people need to sign up 10 people, and then those………”
It’s hard to ignore the massive explosion of Network Marketing (aka Multi-Level Marketing) businesses over the past 5-10 years.
These businesses vary in product offering, structure, and compensation and have become a popular option for many people who want to control their own schedule, be their own boss, and have unlimited income potential. Sounds great, right?!
Well, the industry and business model carries with it a reputation that is viewed by many to be riddled with scams and buyer-beware tales. In recent years however, a lot has changed with the structure of many of these businesses that make them function more like normal businesses.
This article will explore what has unfolded in recent years that has caused the surge in their popularity, the factors that make the MLM business model a scam or legitimate, and how to find success in one of them if you so desire.
The Surge In Popularity
In recent years the popularity of these direct-sales businesses has grown to eye-popping levels:
- $30 billion in US and $150 billion in worldwide sales in 2011 (it’s not just a US thing!)
- 90% industry growth in the past 10 years
- 56 million people in the world who work for some type of direct-sales business
What’s driving this growth? Many people want to work for themselves and control their own destiny, and MLM’s always have success stories of the few select people making piles of money working part time as a result of building such a great organization under them.
Further, there is an interesting cultural shift that has taken place with the wild expansion of social media.
Not only do people seek out advice and recommendations from their social network more now than ever before (thus word of mouth is hugely influential), but the prevalence of social media has resulted in people often feeling more isolated because they have less face-to-face interaction with friends than they used to.
Many MLM businesses sell product through parties, and these parties offer people the opportunity to get together with a group of friends to learn about and purchase the product, and enjoy food, drinks, and laughs together.
There are often very generous and attractive benefits for the party hosts (typically free product), which in this day and age of coupon/discount mania, has a strong appeal.
The businesses that have really taken off over recent years, such as Thirty-One, Stella & Dot, Scentsy, and Pampered Chef just to name a few, all have fairly generous compensation models centered more around the actual sale of product than of the recruitment of reps and sales in your downline (though that’s always part of it).
From a company’s point of view, the MLM sales model makes a lot of sense too because it is low-risk and non-capital intensive given that you don’t have to hire an expensive sales force to go out and sell, but rather you provide some limited and very scalable form of training (after all, the products are not complicated), and then only pay sales commissions out on product that is sold. It’s quite attractive when you think of it in that regard!
It’s All About the Model
The MLM/Network Marketing business model is really nothing new. In fact, many of the largest MLM businesses have been around for 30-50+ years. There have been quite a number of a failures and scams over the years, which have caused many people to be wary of the model all together.
But there is a clear distinction between the scams/pyramid/Ponzi schemes and legit businesses that have chosen the direct sales, marketing, and distribution channel.
The clearest distinction between the scams and the legit businesses is in “the push” to sign on more “reps”, as well as the compensation to do so, as opposed to the actual selling of product.
Often times there are hefty sign-on fees to become a rep, and this revenue stream ends up being the fuel for the Ponzi fire, paying everyone above yet not actually being representative of any meaningful business transaction based on market need.
And of course, eventually there will be no more reps to recruit as the market will be fully saturated, and the house of cards crumbles.
The other characteristic of the less viable model is an exponentially higher rate of compensation paid based on sales done in your “downline” as compared to sales that you are making directly.
This puts the incentive directly on signing people up instead of actually selling product, which ultimately ends up looking like a horribly bureaucratic organization where there are 1000 managers and only 100 sales reps actually selling product. This is not a viable business.
A legitimate model by contrast is one where there are incentives in place to reward those who are actually selling the product to customers rather than just to other reps in their downline.
Another way to think of this is, if not for the financial incentives that come along with selling the product, would you still use it? This concept of ‘incentivized’ versus ‘inspired’ selling is what makes a big difference in the success of MLM companies.
Finding Success in Network Marketing
Finding success requires clear thought about what you want to get out of an endeavor, and knowing what success actually looks like.
The issue that most people run into in this business model is that they don’t treat it like a real job or business with deadlines, goals, action plans, budgets, etc. Nor do they put in the work that it takes to build a sales and marketing business.
If you want to achieve true financial success from this type of business, or any business for that matter, you have to approach it with a clear set of goals of what you want to get out of it. And you certainly can’t assume you’re going to build all that success by only selling to your immediate group of friends.
So, if you’re considering pursuing one of these businesses, be clear with yourself up front what you want to get out of it by defining your goals, and then develop a plan to execute against those goals. And make sure the MLM business itself and the compensation model is viable, and that the product actually fills a market need and has real demand.
Have you or are you currently working with a Network Marketing company? Which one, and why’d you pick that one? What is/was your biggest challenge? What do you love about it?