Why does MLM have such a bad reputation?
If you enter MLM into Google you will find untold articles extolling the evils of MLM, Network Marketing, Direct Selling or Party Plan companies - and, indeed, many of these articles are accurate. In any industry, you will find sharks out to take you and the Multi-Level Marketing industry is not immune. As a matter of fact, it attracts more than its fair share of scoundrels and a little later I will share with you why this is.
Ethical, Legal and Profitable
The key issue is that a Multi-Level Marketing company can be run ethically, legally and profitably. There are thousands of examples of these companies but the best one, in my opinion, is Avon. Their model rewards a new person who is simply selling their products while incentivizing the team leaders to train, manage and motivate these salespeople. Last year Avon achieved wholesale sales of over $14B in sales internationally. Their sales force earned around $3.3B in retail commission and their leadership earned approximately $5B in over-riding and volume-based commissions. That is $8.3B in commission. Let me rephrase… Eight Point Three Billion USD! That is a very big number and they are changing millions of lives all over the world.
To try and stop people from abusing this amazing distribution mechanism countries around the world have established some serious laws to govern what can and can’t be done with a network. The list is extensive but there are a few key points that will highlight the issues (and I will also highlight what the scoundrels are up to).
In any transaction there needs to be a fair exchange of value. In other words, your product or service must offer good value for money. The easiest way to test the value offering is to ask: Would anyone buy the product if there was not a business plan attached to it? If the answer is no, then you do not have a legitimate MLM business. The marketing plan is so powerful that people will join a network and purchase a product just to take part in the promised earnings. In some cases, the company does not have a product at all and you simply donate to their charity and get other people to do the same in the hope of making a financial killing. Many unscrupulous operators will take advantage of this and sell worthless or non-existent products for exorbitant prices. This is the NUMBER ONE indicator of a scam or illegal pyramid.
Training as a Product
If you have great training that teaches a useful skill, such as trading on the stock market, then training as a product is a legitimate, legal and ethical option. If, however, you are selling training to teach your network how to recruit people into your network then you are running an illegal pyramid. This is expressly listed in the laws governing Multi-Level Marketing companies. As you can imagine, there are many people out there doing just this and scamming people out of their money.
At least 70% of all sales made by your company must be to people who are not part of the network and who are purely customers. They see your product, like it and buy it. They do not know about or wish to be part of the network. Unfortunately, those scam artists we keep coming across usually have no customers and 100% of their products are consumed by their network. This is not only unethical, but it is also highly illegal.
When designing a compensation plan it is essential that a new member with zero downline recruits can make a living by simply selling your product or service. This is traditionally done by offering a retail sales commission and a volume bonus for high sales volumes. A new member joins the network, is trained to sell the product or service, and is then able to go out and make a living by selling to customers. There are unfortunately many companies out there that do not offer a retail commission at all and the only way the network can earn money is by recruiting new members. Imagine you have a 5 x 5 matrix. The first person recruits 5 people and earns a commission. His recruits earn nothing. For them to earn they need to recruit 5 people, leaving 25 people who are earning nothing. In this example, most of the network will never earn any money and when the network becomes saturated there will be 5 non-earners for every 1 earner.
Another serious issue is that of front loading. This is where the company expects you to purchase large volumes of product that takes up space in your garage and never gets converted into sales.
So many people get caught by this unethical practice and this, almost above all other issues, has given the Multi-Level Marketing industry a bad name. Front loading is illegal. If you run an ethical network you will heavily discourage the upfront purchase of stock and you will ensure that your compensation plan does not encourage this type of behaviour. Furthermore, your return and refund policy should ensure that your network is never stuck with unsold stock. Your business model should be based on selling through your network rather than selling to your network.
Making Unrealistic Promises
In any network, you will find people promising the world.
“Join our network, sign up 5 people and then retire financially secure”
Well, this is obviously ridiculous but, believe me, it happens all too often. All your documentation, training and messaging must indicate that this is a business where you work hard and make a realistic income. You need to have terms and conditions that sanction any people making unrealistic claims. As the company owner, you should never make claims that are not realistic and honest. My advice to all my clients is to create an online course with a test that includes questions related to realistic claims. In that way, you can prove to the investigators who might be knocking on your door that you are discouraging this type of behaviour.
You Can Go To Jail and Not Pass GO
Make no mistake… the authorities take MLM ethics and legal violations very seriously. If they deem that you are doing something unethical or illegal their first action is to shut you down. They will then investigate and if they find you have been deliberately, or even inadvertently, misleading your people, you can face massive fines and even jail time. As an advocate of the Network Marketing, Direct Selling, Party Plan and Multi-Level Marketing industries, I am all for these unethical scoundrels going to jail. They give this amazing industry a very bad name and delegitimize what is arguably the most powerful distribution mechanism known to man.
There is no need to undertake unethical, illegal or shady activities to make a network fly. All you need is a great product that is priced reasonably, a sales presentation that is compelling, a commission plan that rewards sales and leadership in equal measures, and a management system that is accurate and transparent. If you would like help with your MLM business, please do not hesitate to contact me. I would love to help make your business the ethical and legal powerhouse that I know is possible.