Written by, Samuel K. Burlum, Investigative Reporter and author of The Green Lane, a syndicated column, Published on 7/11/2018, a SamBurlum.com Exclusive
Tags: American Free Enterprise, Business, Direct Marketing, Multi-Level Marketing, Network Marketing, Opportunity, Small Business, Sales
Source: One of the most common at-home business opportunities is the direct sales network marketing of products and services offered by a parent organization. Many of these network marketing companies utilize a multi-level marketing and compensation structure as their business model. Multi-level marketing has received a bad rap, where advocates and adversaries share their pros and cons about this popular and controversial business model. So what are some of the controversies of the industry?
In a recent discussion with an individual starting out their entrepreneurial career, they expressed the options of their future career pathway. Expressing their options, they said, “I am open to many types of business and career opportunities, as long as its not one of those triangle schemes.” Sounds familiar?
Chances are, you’ve experienced (at least once)… a friend, family member, or neighbor who approached you with “The opportunity of a life-time”… to get in on a business that has unlimited growth. What happens when the commentary sounds so convincing (or you just want to appease your friend), and you agree to view a video or attend a meeting where a presentation related to the product and opportunity are explained? The video, full of luxury lifestyle perks and energized individuals sharing their rags to riches stories, piques your interest and entices your human nature. Before you know it, you agree to get involved and become one of the network marketers for the parent company.
Then reality sets in. Months goes by of attending meeting after meeting with potential prospect after prospect; and you become discouraged and doubtful that the lavish lifestyle advertised could never be yours. You decide not to write one more check for an auto-ship product, marketing materials, or to attend any future events. After investing a few hundred or even a few thousand dollars, and your time, you decide to call it quits after the latest prospect says “no” to the product line up or to the business opportunity. Because “it” did not work out in the time frame of your personal expectation, you think it’s one of those “pyramid schemes.”
After a self-evaluation, you come to your own perceived conclusion that the multi-level marketing opportunity was nothing more than hype. It was the people at the top that were making all the money, and all of the flash and excitement was nothing more than showmanship to steal your hard-earned money, free labor, and network connections. But is this really true about most multi-level marketing business opportunities?
According to Black’s Law Dictionary, the legal definition of a pyramid scheme is a scam which is usually carried out on the general public, by making promises of high returns in a short period of time; a system that is based upon paying off the early investors first and the long term liabilities later on. Similar to a Ponzi scheme, one person recruits another person to “invest” into the scheme, then that new recruit duplicates with new recruits, and so on. Usually, each person pays a fee to join, and the only people to make money are the very first people to get involved. These schemes involve no product ownership, no defined compensation plan, and usually crumble under their own weight.
Many people, when hearing of multi-level marketing opportunities, think of the triangle or pyramid scheme, because there is usually an up-front cost or investment for the new recruit. What makes the multi-level marketing business opportunity unlike the pyramid scheme is that the new recruit’s initial membership fee is pledged toward an initial commitment to purchase the parent’s company’s products. At the end of paying the fee, the new recruit has product or service in their hand in exchange for money.
The perception that all multi-level marketing opportunities are pyramid schemes derives from the fact that many multi-level marketing companies focus most of their attention on having new network marketing recruits build out a “downline”, and when you review the downline behavioral organizational chart, they do, in fact, look like a pyramid. What many people don’t know, however, is that a recruit is often not required to build a downline. A recruit can choose to solely focus on product or service sales. Unlike Ponzi or pyramid schemes, whose recruits’ only hope in making anything is based on the recruitment of new investors, multi-level marketing provides earnings within the compensation plan via product sales commissions.
Another common belief is that only people at the top of the triangle in multi-level marketing make all of the money, leaving those at the bottom nothing for their financial investment, time, or labor. There are two sides to every multi-level marketing company. The executive-administrative side to the company is the parent organization that either developed, manufacturers, and/or distributes the product; and the sales development side to the company, or the multi-level marketing side of the business, promotes both the product lines and the business opportunity. The corporate side can be owned by one founder or by a group of founders; however this same principle would apply to any large or small business or corporation. And yes, for their hard work and investment, they would gain a return on all of the businesses positive gains.
The compensation plan written for the multi-level marketing side of the business is usually developed so that every person who enters the business has the same opportunity and the exact same compensation plan afforded to them as everyone else. In most cases, network marketers that have large downlines make more money than those with smaller downline organizations. This has not always been the result of the direct efforts or successes of an individual, but of the efforts and successes made by members in their downline organization. In order to dispel this issue, many multi-level marketing firms have begun to cap how much benefit a network marketer can receive from their downline and/or cap how many levels deep compensation will be paid on. Within some multi-level marketing organizations, some of the very first network marketers to sign up in the company are now making less money, while others in their downline are earning more.
Many individuals also perceive that the parent company offering the product(s) and business opportunity abuses and uses people without compensating them for their efforts. However, many network marketing companies do have decent compensation plans in place. Network marketers are compensated for product sales, similar to other sales positions in traditional companies, minus receiving a “base salary” while building a customer base. Ultimately, a network marketer is confined to a compensation plan that only pays when sales are made and new distributors are recruited and assisted in reaching sales goals.
The outlook that multi-level marketing businesses do not work is a belief that is not in line with the financial results that have proven themselves over time. In 2015 alone, network marketing business opportunities grossed $36.12 billion dollars in retail sales just in the United States alone.
Multi-level marketing organizations have been viewed as cultish or a form of religion. The industry of multi-level marketing is far from a cult or religion; but, as many small businesses or large corporations do, most of these organizations do possess a strong sense of company culture, which is a reflection of their core beliefs, values, code of ethics, goals, mission, and vision.
If you are still skeptical of multi-level marketing business opportunities, then I encourage you to continue to perform additional research or to stay tuned for my follow-up article, “It’s a Pyramid Scheme.”
Samuel K. Burlum is an Investigative Reporter who authors articles related to economic development, innovation, green technology, business strategy, and public policy concerns. Samuel K. Burlum is also a career entrepreneur, who currently lends his expertise as a Consultant to start-up companies, small businesses, and mid-size enterprises, providing advisement in several areas including strategic business planning, business development, supply chain management, and systems integration. He is also author of “The Race to Protect Our Most Important Natural Resource-Water,” and “Main Street Survival Guide for Small Businesses.”