MLM and the Multi-Level Marketing Industry

MLM stands for Multi-Level Marketing, a method of distributing product through direct sales channels - manufacturer to distributor to end user, who may also be a distributor, and that eliminates the 'middle man' - the retail shop or store that would normally hold the inventory and sell the product to the end user.

The theory behind MLM is that by eliminating the middle man, the profit margin usually derived from the difference between the manufacturer's wholesale price, and the consumer's retail price, can be used as a commission to the MLM sales distibutor plus allow the distributor to buy merchandise for personal use at a discount.

It's a great theory - and one that works in practice with a few select, well run MLM companies. By and large, the negative reputation associated with MLM companies is well earned, and well deserved. Too often, uscrupulous start-ups prey on unsuspecting consumers anxious to earn a quick buck in what is pitched as a very compelling, no-way-to-fail get rich scheme.

MLM sales pitches are also very compelling because they are usually delivered by someone you know - a friend or family member who has become involved with a particular MLM opportunity, and usually want to introduce you to the product and to a successful MLM representative that we'll call the 'Closer'.

The MLM closer is typically very successful at selling others on the business opportunity the multi-level marketing company is offering, and helping those people close the deal with their warm market of friends and family.

The closers, or MLM Professionals, are typically the only ones who earn a significant income from a company and oftentimes they are compensated up-front by the company for generating a buzz and bringing in new people.

Several companies have used MLM distribution effectively, and legitimately to build an enormous consumer base for their products. Companies like Fuller Brush, Herbalife, and perhaps the most well known - Amway - all have enormous distribution channels for their consumer products that have been built entirely by word of mouth, consumer to consumer, MLM marketing.

How do you determine if an MLM company or MLM opportunity is legitimate?

First, if it looks too good to be true, it probably is. If it sounds like a company pays you more in commission than the product you are selling is actually worth, something is wrong.

Look for company references on the internet. With any typical Multi-Level Marketing company you are going to find hundreds of links and websites posted by representatives anxious to bring you into their deal. Ignore the sales pitches and hype, and even press releases from the company, all of which are obviously slanted to support the MLM company. Look for links that include keywords like 'scam' or 'fraud' and read carefully for any information on state or government legal actions.

Look at sites like this one for information on the company, links to articles, and executive histories. Typically, a list of executives with several corporate bios from companies that no longer exist is not a positive MLM reference. If an executive has been with four MLM companies in four years, all of which no longer exist, that usually means all the companies failed and many of the MLM distributors or reps lost their money and dreams for financial success.

Look for companies that make simple claims such as 'earn extra income' rather than specific income claims like 'Earn $10,000 Your First Week!'. MLM companies with solid product lines will attract representatives through word of mouth without hyping the compensation plan. Quality products should always outweigh promises of riches in the sales pitch.

If in doubt, wait and see. Many MLM sales pitches tell you that you must get involved now, or someone will take your spot, or that your potential MLM leads (friends and family) will soon be recruiting you unless you get involved and recruit them now yourself. No company will realistically reach that kind of market saturation, and waiting through a cooling off period, doing some due diligence and researching an MLM opportunity will help keep your hard earned cash flowing in the right direction.