The Naked Truth On Multi Level Marketing

For some time, there has been an ever present phobia associated with the term "Multi-level Marketing" or often called by it's acronym "MLM". This fear could often be compared to the same repulsive sensation one feels when in close proximity to a skunk. Like most fears in our society today, is this fear of "MLM's" based on reality, or is the true source of this phobia simply lost in a dark cloud of ignorance? MLM's have existed for many years, and going back decades will often be associated with organizations such as Amway, Herbalife, and Watkins, etc. Each person, no matter where they are on the organizational chain builds their business through two key functions, marketing products, and recruiting new distributors (also referred to as Sales Consultants, Independent Business Owners, etc.) . These people all do the same basic functions, sell products, and recruit new distributors, living off commissions based on their own as well as the sales of people recruited in their downline. On close examination of the business structure, there is a markedly close comparison to the business structure of many non-MLM business and franchise agreements, where royalties are paid based on the sales of the individual franchise organization to the franchise owner, as well as the area or regional manager. In MLMs, there can be a vast number of levels of distributors receiving royalties or commissions from one person's sale. Why then do most people get their back up at the sound of the term "MLM" or the words "multi-level marketing"? Truthfully, MLMs have an image problem that goes back many years. The business structure of MLM's has been duplicated many times over. Some have used the business model as a means to fraudulently make money. Many people see an MLM and immediately assume they are one in the same as a Pyramid Scheme, or a lesser known evil, the Ponzi scheme. MLM's while struggling with image issues have in recent years made vast strides in changing "their window dressings". Today you will see the products of public relations departments as you hear new businesses refer to themselves as "home-based business franchises" or the latest fever to hit the world, especially on the internet, is the wave of "affiliate marketing" groups. No matter the name, MLM's are identified by their business plan and structure. So how does one quickly determine if they are faced with a legitimate MLM or in fact they have been duped into an illegal Pyramid or Ponzi Scheme? In legitimate Multi-level marketing businesses, people earn commissions from the sale of products as well as from the enlistment of new distributors. If the only commissions offered by the program are for the recruitment of new distributors, then it's an illegal pyramid scheme. Products must be a part of the program for the business to be legitimate. If Distributors are required to buy more products than they are likely to sell, then it is considered a Pyramid or Ponzi Scheme which is illegal in many countries. It's important to say, that while in structure MLM's and illegal Pyramids look the same, and while both can receive monies for bringing in new recruits, the primary difference lays in one area. MLM's have a product line associated with the business which can be marketed in a variety of ways giving the individual business consultant the opportunity to stock the product or simply act as a salesperson working for a drop shipper. In MLM's the clear expectation is that the majority of the commissions earned will be from the marketing of products, not from the recruitment of or sale of memberships to new distributors. When questions of legitimacy have arisen, the courts, upon examination have applied a simple determination to separate Pyramids from MLMs. The determining factor lays in the area of products sold. Precedent has been set recognizing what's known as the 70 of those products first. While some argue, this means selling to none distributors, some also allow this to include products Distributors use themselves as "Demonstrator Products". Both arguments have been successful in the Courts, and while one might wonder why the variance, intent must be considered, or at least somewhat added to the pot, to determine the final mix of the ruling. The Federal Trade Commission uses further determinations to define as to whether or not a business is in fact a Pyramid Scheme. In the Commissions determination, Pyramid Schemes are a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme usually without any product or service being delivered. Pyramid schemes have existed for well over 100 years. Closely related to Pyramid Schemes is another term often heard of, "The Matrix". The Matrix Scheme uses the same non-sustainable business model as Pyramids do, but here a person pays to join a large waiting list of people for a product which only a few of them can receive. It's important to note, the Federal Trade Commission recognizes there to be a difference between MLM's, Pyramids, and Matrix plans with MLM's for the most part being legal. While MLM's are legal, the line between them and their illegal counterpart is not black and white, but covered in an array of contrasting shades of grey. Ponzie Schemes are illegal "private - unregistered" investment programs which offer incredibly high returns for short term investments. These require an incredibly fast continuing influx of cash flow in order to survive, therefore using the MLM business model to accomplish such, and often collapse only to disappear before they are discovered by the authorities. The success and potential for sustainability of Pyramid, Ponzi and Matrix Schemes all depends on their ability to disguise their program and confuse the investor long enough to get them to hand over their money. So is the fear of MLM's reality based? Certainly, the general public has been burned by many illegal businesses, and while similarities do exist in the business models, it's important to realize MLM's are legitimate businesses, and people do earn real incomes from them. MLM's may not be for everyone, but they are certainly no less a serious business than the franchised coffee shop in your own neighborhood.