First of all, you must understand what MLM (Multi-Level Marketing) means in its simplest term. MLM or often called network marketing is a strategy of a business to market their products with less cost. Members make money not only by receiving commissions from their sales, but also from the sales of their “downlines.” These downlines are people who joined the MLM company under a current member.
By principle, MLM is legal and is being used by many companies around the world, including the Philippines. However, there is a confusing difference between MLM and pyramid scheme, which is 100% illegal. In pyramid schemes, members only earn once a new member joins and not through product commission. Most of them offer “easy money” in very short period of time. To avoid confusion between MLM vs pyramid scheme, here are the top 10 questions to ask before you join any MLM company:
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#1 Is the company legal to do MLM?
Lawyers are better people to discuss this to you. MLM companies usually present documents to prove that they are legal. But although some of them have legitimate products to sell, the MLM itself is under question by concerning government agencies. The best example is Amway, the controversial American company founded in 1959 by Jay Van Andel and Richard DeVos. Although their health and beauty products are real, Amway has been investigated for pyramid scam and was required to pay millions of dollars in 2010.
#2 What are the full details about the company?
Let’s assume the company is legal and is authorized to do MLM. Still, you should know the company’s history and how long it is in the industry. What is the complete address of its main office and branches as well? Who is the founder of the business and who are the current owners? Does it have a pending case in court? Today, some MLM groups use social media only and have no physical business address, which is very scary. If so, where can you complain if something goes wrong? How will you go after them?
#3 What are the products to sell?
This is actually the most important question. As mentioned earlier, pyramid scams have no products to sell. If there are multi level marketing products to sell, are they consumable? How long? If they are not consumable, can you still sell them for a good price to non members? Note also that the value of the products should not be far from the price of the membership fee. This means that the company is not only making money from its members, but also for the products they sell. This is actually the main goal of MLM.
#4 Is the market competitive?
In any kind of business, there is a thing called market saturation. It occurs when the market is very limited. Once almost everyone has already bought the product, who will still buy the product? This can be a huge problem not only in MLM companies but for also the companies that are in direct selling only. This is why should understand not only the products but also the kind of end users of those products. You should also know their financial status, as well as the status of their competitors in the market.
#5 How do members make money?
In a legitimate MLM company, it is not the early members who recruited many members should make more money. On the contrary, it should be the members who are generating more sales and whose downlines are also generating huge sales. This is why you should understand very clearly how their compensation plan works before you release your hard-earned money. Ask also how many percent of their members are active and are getting rich. How much was their investment? As an investor, it’s your right to know these figures.
#6 Does the company focus more on selling products than recruitment?
The quick answer should be yes. In fact, the main reason why companies enter MLM is to increase sales. The members are only distributors in a different level. But if the answer is no, it means that members are “being forced” to recruit more new members, making the business is very unreliable. Early members may be earning a lot of money because they have recruited hundreds or even thousands of new members. If the only chance to make money is through recruitment, it’s surely a pyramid scheme. Don’t ever join them.
#7 Are there sufficient trainings?
It is not enough that an MLM company has YouTube videos or an official website. There should also be trainings where new members can attend physically and can ask questions. The speaker should be able to explain every detail that you need to know, including the benefits of the products. Besides the usual trainings, there should also be seminars about leadership, motivation, and marketing techniques. And of course, these trainings should always be free, just like any ordinary company does to their employees.
#8 Are the testimonials realistic?
During seminars, you will surely hear many mind-blowing testimonials from members claiming that they are earning good money, have bought expensive cars, and have traveled in different places. But while some of them can be true, many of them are too good to be true. All members of pyramid schemes are great actors and could even qualify for the Oscars. This is why you should check if their earnings are really achievable. And if they are, what are the chances that you can also earn the same or even higher?
#9 Are you being pressured to invest more?
MLM companies will tell you that investing more means earning more profit. While this can be true in every business, there should no pressure on your part. In a legitimate network marketing business, having higher sales is always better than recruiting more members. After all, the sales from the products should be the lifeblood of the business, and not the members alone. If you are being strongly motivated to invest more, it only means that the business makes money from investments and not from selling.
#10 Are you willing to dedicate your time and effort?
Assuming that the MLM company is legitimate and stable, it’s now time to ask yourself, “Am I willing to dedicate my time and effort?” You see, MLM is not magic and will never be. Profit will not come to you right after you made an investment. Posting on Facebook alone is not an effort, but rather a simple marketing strategy hoping that readers will believe you and will decide to join. You need to study the business further, and be able to explain the business to your prospects face to face and answer their questions.
Here’s a BONUS QUESTION you should ask to the person who is inviting you now to join MLM networking.
“Assuming that you are MAKING GOOD MONEY FROM MLM, how can I get my ROI (Return of Investment) if YOU and many other huge earners leave the company or stop investing more?”
Again, MLM is legal. But there are two major concerns. First, if the promise is too good to be true, it’s likely not true. Use your common sense before joining any MLM company. If the company guarantees that you can double or even triple your money in a very short period of time, then all rich investors and even the government should have joined them. Second, it’s true that are people who are making good money from MLM. But they are spending a lot of time and effort; made a lot of sacrifices and additional investments.
Disclaimer: The above article was sent to TN by a Filipino named Ronwaldo, a former member of various MLM companies in the Philippines. After spending more than 8 years in MLM, he used most of his earnings to buy properties and is now focusing on his hardware stores in Metro Manila.
For more information on how to investigate an MLM company, read this article from the Federal Trade Commission of the United States of America.
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