Is multi-level marketing (MLM) a good way to make money? At a time when family budgets are strained and jobs are hard to find, it’s a fair question.
KPLU financial commentator Greg Heberlein recommends you do your homework before signing on with an MLM company.
How big is the industry?
A thousand or more companies engage in multi-level sales of products in this country.
Multi-level means a worker receives compensation both through sales of the actual product and by the ability to persuade others to sell the product.
Who are some of the big players?
Many substantial businesses—Avon, Tupperware, Herbalife, Amway, World Book encyclopedias—earn substantial income through multi-level selling.
Common product lines are beauty care, nutrition and household items.
So what’s the problem?
The industry is controversial. In fact, the government, academicians and others have called it a pyramid scheme.
Here’s the rub: many companies make more from the worker’s sale of product to distributors he or she has recruited than from the worker’s sale of product to the public.
The more respected companies in the industry do the reverse; they make the most money selling to the public at large.
But if the companies are making money, some sales people must be sharing in the wealth, right?
Those are hard to find. Most who take such jobs earn little or nothing.
By one estimate, 3 out of 10 never make a nickel after signing up. Of the remainder, more than half make less than $100 a month. One expert says a multi-level sales person rarely earns more than $1.50 an hour.
According to figures supplied by MLM giant Herbalife, 47.5 percent of the company's "sales leaders" earn an average of $292 a year.
More than 30 percent earn nothing at all.
Just 1.4% of Herbalife's sales leaders earn an average of $35,581 a year.
Life is good at the top of the Herbalife pyramid, where 0.7 percent earn more than 100,000 a year.
Multi-level marketing is not illegal.
No. But many criticize it for its business model.
The Federal Trade Commission encourages those considering such work to make sure they know what they’re doing.
Before signing up, study the company’s track record. Ask questions. Understand any restrictions that might bind you. Take your time. Ask friends and associates for their opinions. Consider the consequences of relations with family and friends you might recruit.
The successful wage-earners in multi-level businesses are excellent sales people, period. They might consider working sales in businesses in which minimum pay scales are guaranteed and extra gains don’t come from recruiting.