In today’s economy the wages are down, unemployment rates are high and the job market is tight. You may decide to examine opportunities to work from home to supplement your income. Perhaps you’ve been approached by friends, family or business associates about opportunities. In many cases these opportunities are with Multi-Level Marketing (MLM) companies. If so there are things you need to know before deciding whether or not to get involved.
1. It’s an MLM company.
Before you learn anything else about the company give some thought to whether you want to be involved with an MLM. These companies have a known social stigma to them. People tell jokes about them and have a lot of preconceptions about what an MLM is, how it operates, and what kinds of people join them. If are unsure you would be comfortable be tarred with that particular brush then MLM companies are probably not for you.
2. It’s sales work.
Regardless of what name the process is given, offering a product or service in exchange for money involves sales. If the MLM company tells you it is sharing ideas it is still sales. If you are not comfortable selling products and services then MLM companies may not be for you.
3. You’ll be expected to try to sell to everyone you know.
Sales organizations call this “selling to your warm market.” The idea is that the relationships you have with friends, family and colleagues will be warmer than the relationships you have with strangers. The MLM company will recommend approaching people you already know because you will be comfortable speaking with them.
This is a double edged sword, however. You may be comfortable opening a conversation with your best friend by saying, “May I share with you something I’ve been working on?” It is often more comfortable to do so than to approach random strangers. The downside is that people generally don’t like being sold to. They also don’t like feeling you’re taking advantage of your relationship to sell them something. Selling to unwilling friends, family or co-workers can poison your relationships with them.
4. You will need to recruit.
Legal MLM companies must have a product or service to offer. They are legally obligated to so do and to make the sale of this product or service their primary goal. As a practical matter, however, this is rarely profitable for the individual MLM participant. If you want to make any significant money in an MLM you will need to recruit people under you in the organization.
The people beneath you are called your downline. You will typically receive compensation when people join your downline (often in the form of a bonus paid to you for training them, rather than as a signing bonus). You will probably also receive compensation any time a member of your downline sells the company product or service.
That means the most profitable way for an MLM participant to earn money recruiting a huge downline of people who also actively sell and recruit. The author is unaware of any MLM company where the top earners reached that status without recruiting a huge downline. Again, it is not a requirement that you recruit. It is simply a practical necessity if you want to earn larger sums of money.
5. Most people who join an MLM lose money.
Before joining any MLM company ask to see its Income Disclosure Statement. It is required by law to be available to you. This document details how much money is being made by participants. Read it thoroughly. Less ethical MLMs may word them in such a way that true income amounts are hidden. For example, it may show the income only for “active participants.” That means any figures will only include results for people who made money, leaving out all those who made nothing, or lost money.
The majority of MLM participants lose money. They are unable to sell the company product or service. Of those who do manage to close sales the majority still take a net loss. Before joining an MLM make sure that you can afford to lose every cent you put into the business.
6. Treat MLM participation like any other business.
If you decide to join an MLM remember that you are engaging in a business activity. Your goal is to turn a profit. Conduct every aspect of your MLM participation with that firmly in mind.
Keep careful track of income and expenses. Record every cent earned from participation in the business. Also record every expense from your original fee to join the MLM to the cost of business lunches showing your product. This is important for two reasons.
First, you will not know whether you are making a profit or taking a loss if you do not have income and expense figures to compare. To be profitable you must keep your income higher than your expenses. If you do not see this result then the smart move is to cut your losses and exit the business. Many MLM participants stay involved much too long because they do not keep records. They are unaware how much money they are losing.
Second, if you take a loss, you can talk to your tax professional and learn whether or not you can write off the loss as a business expense. This may save you money on your income tax bills. Be sure to consult a qualified tax professional to find out if you can take deductions of that sort.
Most MLM companies work hard to inspire their sales force. In some cases this takes the form of rallies and hype. In others it may approach being a cult of personality built around charismatic company leaders. In all cases you should be cautious not to get taken in by the hype. Stay focused on treating the opportunity like any other business venture.
If you’re not prepared to treat the opportunity as a serious business endeavor and steer clear of hype and distractions, choose another way to earn extra money.
7. If you don’t believe in something you can’t sell it.
MLM representatives frequently approach people to try to recruit them. If it happens to you, start by asking, “Would I use this product or service myself if I evaluated it purely on its own merits?” For example, if the company sells soap, you should ask if you would seriously consider using that brand exclusively and repeatedly if you had just stumbled across it on a store shelf. Is it high enough quality to suit you? Is the price something you would pay? If the answers to those questions are negative then that company is not for you.
The reason is that you will have to sell the product to others. If you have ever been on the receiving end of a sales pitch you were probably able to tell whether or not the salesperson had confidence in the product. If the salesperson does display confidence in the product then you are unlikely to want it. Before you pay to join a company and become a salesperson you should be certain you have enormous, justifiable confidence in the product. If you don’t, or cannot find an opportunity to sell a product in which you are confident, then MLM companies may not be for you.
There are plenty of MLM companies offering high quality products and services. Keep a critical viewpoint in place and look for any obstacles to success before you pay to join. Unlike a regular job, all MLM companies are “pay to play.” Make sure you have the right opportunity before spending any money.
