also known as MLM or Network Marketing,
is an alternate channel for a manufacturer
to deliver its products to market.
channels include retail storefronts, catalog
shopping, and door-to-door sales.) Depending
on the particular company, the MLM channel
may provide both word-of-mouth advertising
Q: Why would a
company choose the MLM route to product
There are several
- Low overhead. There are virtually no up-front
Unlike a typical retail company, the MLM
company doesn't have to spend massive amounts
of money to "pull" customers in.
Instead, it pays distributors to "push"
the product out into the marketplace.
In addition, the
company only has to pay the distributors
for *results* -- that is, a percentage of
products actually sold.
Ordinarily an MLM
company will use the money that *would*
have gone into advertising to pay its distributors.
(Using Procter & Gamble as an example:
I have an unconfirmed report that says P&G's
sales in 1992 were $25billion. Their advertising
budget was $10billion. So they spent 40%
of their sales on ads. MLM companies typically
pay 40-80% of their sales volume to their
- Low distribution
overhead. Typical retail companies generally
a series of national, regional, state, and
local warehousers to distribute their product
to the retail stores. Each of these intermediaries
wants to make a living, and marks up the
cost of the product. Using P&G again:
my unconfirmed report says that a tube of
Crest that sells for $2-3 in a store costs
P&G roughly 13 cents to manufacture.
If it sold for $2, 40% (80c) would go to
advertising, leaving $2 - 80c - 13c = $1.07
for distribution costs and P&G's profit.
- Rapid growth.
A well-managed MLM company can grow at an
rate -- as much as 20%, 50%, even 100% per
MONTH. (In fact one of the biggest reasons
for MLM company failure is inability to
keep up with explosive growth.) It would
be difficult or impossible to generate this
kind of growth in an overcrowded retail
- Specialized and
motivated "sales force." There
are hundreds of thousands of products cramming
the shelves of retail stores. It's almost
impossible for a new product to make a dent
in the market, unless the company spends
megabucks on advertising.
Also, many MLM products need more explanation
than can be done in a 30-second TV spot.
A person-to-person word-of-mouth campaign
can solve both of these problems.
That's the company's
perspective. For the individual, MLM can
offer an opportunity to build a part-time
income source that can, with enough effort,
grow into a significant income. With hard
work (and a little luck) you can earn incredible
How? MLM is all
about "a lot of people doing a little
bit." In an MLM you are rewarded for
the sales you create -- not only directly,
but indirectly as well. You get profit for
any retail sales you make, plus you get
a bonus on the sales made by people you
enrolled into the company, and people they
enrolled, and people THEY enrolled, and...
By getting a small percentage of many people,
your income can grow to a very large number.
But wait. It's not
that simple. It takes a lot of time and
work to build up a group (called a "downline")
in any MLM. What's more, even if you're
a real hard-working go-getter, YOU can't
do all of it.
You can't enroll
the 90,000+ people in this group by yourself.
Each person has to find 5 of his own --
and the sad truth is, most people are not
that ambitous. It's hard to find the ones
that will work.
So it's almost unheard-of
for someone to actually build an idealized
group like this. Some "legs" in
the downline will build faster than others,
and some will grow slower. If you don't
work hard yourself, you might never start
ANY legs that go anywhere.
But that's the concept:
a whole lot of people doing a little bit
each, and you getting a small reward on
each one. If you have the initiative and
work ethic to build that group, you can
make a very nice income in MLM -- maybe
even get rich.
But MLM **IS NOT**
a get-rich-quick deal. It DOES take a lot
of work, and most people won't put in the
work it takes. The large majority of people
will never get rich; quite a few hardly
make a dime. But the beauty of it is, as
long as you pick a good company with a good
product or service, the size of your success
is up to YOU.
Q: Is MLM a scam?
Is it legal? Is it moral, ethical, etc?
The short answer
This is the cause
of 99% of the flamefests, arguments, and
general disagreements about MLM. Many people
contend MLM is immoral or unethical. Many
Attorneys General (who ought to know what
they're talking about) say a properly-run
MLM is perfectly legitimate and ethical.
The truth is, MLM
is not inherently good or evil any more
than capitalism is good or evil. Both can
be done ethically, and both can be done
unethically. It depends on how a particular
company is designed and managed.
Since the MLM industry
is very young (about 40 years old), the
law is still in flux. There are admittedly
many MLM companies that are nothing more
than scams, get-rich deals for the owners
and their cronies, glorified chain letters,
etc. Some of them even manage to skirt around
the legal issues and avoid prosecution.
There are other
companies that have legitimate products,
and may have been in business for many years,
but which are run in such a way that many
people get burned -- old ladies investing
their retirement funds to buy a garage full
of products, and so on.
Most people would
agree these companies, or at least the distributors
that do the questionable practices, are
not very ethical.
On the other hand,
there ARE many companies that are run legitimately,
legally, and ethically. They produce good
products that are valued by customers, and
give many people the opportunity to improve
their financial situation.
The anti-MLM people
will often assert that MLM companies and
people sell unrealistic fantasies of income
potential, recruiting "cannon fodder"
to fatten their upline's bonus checks. This
view is understandable, but misses one critical
point: in general, the new person has the
SAME OPPORTUNITY to build a group as the
fatcat upline guy. The upline has worked
hard, maybe for years, to build the downline
that is now rewarding him so richly.
The new person has
invested maybe a couple of hundred bucks
and a few hours. It's only fair that everyone
starts out in the same place -- AT THE BOTTOM
-- and everyone has the SAME chance to build
a downline of their own.
The major exception
to this is in the theoretical case of "saturation."
In this situation the company has grown
so much that a large percentage of people
who would be interested in enrolling have
(NOTE that this
does NOT mean "EVERY person is enrolled"!)
The new person has a much harder time finding
new recruits than the upline person did
N years ago. The new person has several
go with the established company, and live
with the saturation; go with another company
that has no saturation problems; or give
On the other hand,
while it may be a bit harder to find new
prospects when a company is mature, the
new person who joins the mature company
has MANY more tools and support mechanisms
available to him/her than the "old
hands" did back at the start of the
company. There are probably also many more
products, more professional literature,
While those pioneers
may have had wide-open spaces to settle,
they also got more arrows in their backs.
It works out pretty evenly.
In actual practice,
saturation is very seldom a problem. It
may be easier or harder to find new prospects
for a particular company in a particular
location, but there are very few cases that
are actually "saturated." The
thing to understand is that saturation is
not a clear-cut, yes-or-no situation; one
company may be CLOSER to saturation than
another, but neither might be actually "saturated."
The anti-MLM argument
often runs calculations of exponential growth,
and demonstrates that the entire population
of the planet will be enrolled within a
short period. This is an intellectual exercise
rather like the example of "one pregnant
mosquito could carpet the earth in mosquitoes
by the end of the summer." In other
words, in actual reality, it doesn't happen
that way. The growth rate is normally much
slower than people realize (especially once
a company gets larger), and slows down as
a company approaches saturation. It may
get harder to enroll new people in a large
and near-saturated company, but NO company
in the history of MLM has ever grown fast
enough to exhaust its potential marketplace.
More people turn 18 every year in the United
States than are enrolled in all MLM companies
combined. So far, at least, the growth of
MLMs hasn't kept up with the growth of population.
So, bottom line:
In the opinion of many people, MLM *can*
be done legally, morally, and ethically.
It can also be done unethically and illegally.
Choose your company carefully.
Q: But isn't it
wrong to keep bringing in new participants,
rather than concentrating on selling a product
like "regular" businesses?
Many anti-MLM folks
think that the only purpose of ANY MLM is
to enroll new people, instead of selling
a product. What they don't understand is
that ENROLLING NEW PEOPLE *IS* HOW YOU SELL
THE PRODUCT IN MLM.
If you focus only
on selling, it isn't MLM -- it's plain old
sales. Nothing wrong with that; it's just
MLM works with a
DIFFERENT PROCESS than typical sales. Rather
than finding a few people who sell a ton,
you find a bunch of people who sell a little.
(And, since each sells so little, self-consumption
can account for a significant portion of
those sales.) Enrolling new people, and
building downlines, is how you find the
people who each do the small amount of sales.
(Note: EACH do a small amount of sales.
NOT just the "suckers
on the bottom". In any legitimately-run
MLM, ALL people, from top to bottom, contribute
to the sales effort.)
Product still gets moved -- that's how bonuses
get paid in a legitimate MLM -- it's just
done in a different manner than in traditional
sales or retail.
MLM works differently
than traditional methods, but just because
it's different doesn't make it bad. It's
just DIFFERENT. Just like franchising was
different from traditional retailing, and
was considered to be a scam for many years.
But when properly implemented, franchising
is not a scam; it's a very effective way
to do business. Similarly, when properly
implemented, MLM is different from traditional
retailing AND franchising, but can be a
very effective way to do business.
Q: What's the difference
between MLM and Network Marketing?
Most people would
say the terms are synonymous. MLM is an
older term, and has taken on negative connotations
in some people's minds. Network Marketing
is preferred by some who are trying to avoid
such as Amway, consider "Network Marketing"
to be a specific form of MLM: namely, combining
a "network" of outside suppliers
(AT&T, Coke, Reebok, etc.) with a network
of "marketing" folks (the distributors).
Q: How can you
succeed in MLM?
Short answer: Work
diligently, work consistently, and don't
Long answer: all
companies are different, and what works
in one company might not work in another.
You should learn from your upline -- ask
them what works and what you should do to
Draw on them for
help. They've found out from experience
what works and what doesn't, and they're
interested in your success. The fundamental
ideas, though, are the same in any company.
Do what a distributor/associate/whatever
is supposed to do in your company -- retail
products, sell services, consume products,
whatever -- and find others to do the same.
Teach them to do what you do.
the key to success in MLM. You're not supposed
to go out and enroll the world, or sell
something to everybody on the planet. You're
supposed to find a FEW people who want to
build a business, and help them do it. More
importantly, teach THEM to do what a distributor
does, AND go out and find a few people to
work with, AND teach those new people. Until
you have "taught your people to teach
their people to teach," you have not
really duplicated yourself.
Keep plugging away.
Unless you're incredibly good at this, it
will take time to build a group. It takes
time to find good people and teach them
what they need to know. Sometimes your best
people will give up and drop out. Sometimes
it can be very discouraging. Sometimes you
may be tempted to give up.
(And if your company
isn't working very well, maybe you should.
But if the company's working well, and others
are succeeding, you need to take a look
at what YOU'RE doing that isn't working.
It may be that you wouldn't do any better
in another company, even if the grass looks
greener, because you're doing the wrong
It is a sad fact
that a very small percentage of people who
enroll in any particular MLM will succeed
big. This is NOT, however, a fatal flaw
of MLM; it's a reflection of real life.
90%+ of small businesses fail within 1-5
years -- and the owners lose a whole lot
more than the few hundred dollars an MLM
person typically invests. 98%+ of corporate
employees will never achieve executive levels.
95% of 65-year-old retirees in the US (according
to insurance & Social Security statistics)
are dead or broke. The sad fact is, very
few people succeed big in ANY endeavor.
Most people simply will not do what it takes
to succeed. MLM is no different in this
However, many people
get into an MLM with the idea that it's
some kind of "easy road to riches".
It's not. It takes work. It takes time and
dedication. But most people don't see that,
either because their sponsor misled them
with rosy predictions of instant wealth,
or because they chose to hear the easy story.
People like this enroll and don't do anything,
or give it a try but give up after a few
months. This is where the vast majority
of "MLM failures" comes from.
The biggest problem
with MLM is that it's "too easy"
to get into it (usually no more than a few
hundred dollars), so it's "too easy"
to get out. With only a few hundred bucks
committed, it's easy for someone to say
"Ah, heck, I talked to 4 people and
none of them were interested. This doesn't
work! Guess I wasted $200."
You should approach
your business as if it was a "real"
business, one that you had invested your
life savings into. If you had sunk $200,000
into your MLM business, would you let 4
"no"s stop you? Hell no!! You'd
get back OUT there and KEEP working until
you MADE it work, because you had too darn
much money in it to give up! Well, guess
what? That's what makes MLM work too --
that dedication to keep working until you
make it work.
If you work consistently,
and effectively, and build your group faster
than the faint-hearted people drop out,
your group will slowly but steadily build.
And if you've taught your people the correct
ideas of "work consistently, work effectively,
and teach your people how to duplicate your
efforts", you should see a consistent
rate of growth. It will probably take longer
than you'd like (hey, that's the way life
works!), but as long as you keep working
at it, your income will eventually build
to the level you want.
The problem is,
most people don't do this. Most people who
get into MLM give it a half-hearted try,
then give up the first time they get a "no"
and complain that "It doesn't work."
Only the people who determine to put in
the effort, and actually DO what it takes
to succeed, will stick it out and end up
Q: How can I identify
a good MLM?
Things you should
look for include:
- Good products. Are they something that
LOTS of people will buy?
Do they fill a real need? Are they competitively
priced, and can you make a profit selling
- Strong and stable
company. You don't want them to go belly-up
after you've worked to build a downline.
How long have they been in business?
What is their financial
situation? (A quick check with Dunn&Bradstreet
and the Better Business Bureau [if in the
US] might be worth your time.)
What prior experience,
both in general business AND in MLM, does
the company management have?
- Good company support.
Are there good training materials, manuals,
- Strong upline
support. Ask your prospective sponsor what
kind of help he can provide you. Ask what
sort of success he or she has had, or, if
he's too new for that to be a fair question,
ask about his upline.
If they're not succeeding,
they can't teach you how to succeed, and
you don't want to have to invent a system
Things you should
avoid at all costs include:
- Inventory loading.
If your sponsor tries to pressure you into
buying thousands of dollars of inventory
(or ANY inventory, in my opinion), you should
check to make sure your wallet is still
in your pocket and run for the door.
- High pressure
claims, promises of wealth without effort,
Those are some broad
guidelines. The biggest determining factor,
though, is YOU. YOU are the one who's going
to work or not work. YOU are the one who
needs to stay motivated, and keep plugging
along when things get tough.
If YOU'RE not excited about the company,
the products, and/or the opportunity, you
probably won't stick it out long enough
to succeed. But if you're pumped up about
the company (and not just the initial "I'm
gonna get rich" excitement), you're
much more likely to keep at it until you
Q: What are the
popular compensation plans? (Breakaway,
is a major source of income in most plans,
especially for someone who has not yet built
a large downline. But downline bonuses are
where the big long-term money comes from.
There are several basic designs that are
used in most MLM bonus plans.
The most common,
having been around the longest, is called
a "breakaway" or "stairstep
breakaway" plan. In this sort of plan,
there are sometimes differing wholesale
prices, or "discount" rates, available
to someone depending on their position in
the plan. As you progress to the higher
positions, you will get a larger discount.
characteristic of this plan is the "breakaway",
a position where you "break away"
from your upline. After this point, the
product volume generated by you and your
downline no longer counts toward your upline's
"group volume." Now that you have
"broken away," you start tracking
your OWN group volume.
There is usually
some provision for getting paid bonuses
on the volume of "breakaway" groups.
You might get paid 5% on first-level breakaways
(groups directly under you), 4% on second-level
groups (breakaway groups under your first-level
groups), and so on. There is normally a
minimum "group volume" requirement
for you to qualify for these "breakaway"
or "generation" bonuses. The number
of generations you are paid on and the percentages
you get are dependent on the company and
the position you have reached.
Breakaways are often
considered the best plans for serious hard-core
workers. They are harder than other plans,
but also have the greatest potential rewards.
Most MLM fortunes have been made in breakaway
You can get paid
hundreds of levels deep in a breakaway,
unlike the other (matrix and unilevel) plans.
But you have to work to earn it.
That does NOT mean
that breakaways are necessarily the best
plans for your average Joe -- because your
average Joe **IS NOT** a "serious hard-core
worker!!" Many part-timer MLMers find
breakaways to be too difficult for them.
made use of this "breakaway" design
because it simplified their record-keeping
and inventory problems. Without computers,
it would have been impossible to track hundreds
of thousands of distributors, so the companies
DIDN'T track all of them.
levels were the only ones who worked directly
with the company, and acted as distribution
points to their downlines. Often they were
responsible for paying their downlines as
Most companies have
relieved the distributors of this overhead,
but the breakaway structure is still a popular
is a newer structure that came about since
the advent of cheap and plentiful computers.
A matrix plan has a fixed "shape"
that determines the size of a downline you
can be paid on. For example, if your company
uses a 5x7 matrix, you can have no more
than 5 people on your "frontline",
and can be paid no more than 7 levels (people,
not breakaway generations) deep. If you
already have 5 people on your frontline,
any future people you enroll will have to
be "placed" somewhere below those
5 frontline people. This is called "spillover."
At first glance
you might think this means you can only
have 5*7 or 35 people in your downline,
but that's not true: each of the 5 people
in your frontline can have 5 people on *their*
frontline, and so on.
So a 5x7 matrix can actually hold as many
as 5+5^2+5^3+5^4... or almost 100,000 people.
In theory, anyway. In reality it is very
rare for a 5x7 matrix to be more than 2-3%
full. The restricted width quickly forces
the growth in active legs down and out of
is either a curse or a blessing, depending
on how you look at it. Matrix proponents
say it's a great way to force people to
help their downlines, since they'll have
to place people below their downline distributors.
Spillover also tends to keep people active,
because they don't want to lose out on the
"free" downline spilling over
from their upline. Matrix detractors argue
that spillover is a form of "MLM welfare"
that rewards weak and non-performing distributors;
if they're working, they already have people
below them, so you're more likely to place
people in the "holes" under non-workers.
Matrix plans also
punish top performers, since they have to
place new recruits farther and farther down
in their matrix. After a while they get
so little benefit from those new recruits
that they lose much of their incentive to
Many newer companies
are using matrix plans. I have seen 5x7,
3x9, 2x12, 3x3, lots of different shapes.
Study the plan carefully to understand how
it will work. Don't assume that a matrix
will fill evenly; most often you will have
an active "leg" that will grow
out of the bottom of your matrix long before
other legs have filled in the rest of the
matrix. But the simplicity of the matrix
plans makes them very attractive to many
(I confess that
I'm not a big fan of matrix plans. But a
lot of people really like them, and are
happy with the results they get with matrices.
You decide what's right for you.)
Recently the "unilevel"
plans have become very popular. These plans
are similar to a matrix with no width restriction.
So, for example, you might get paid 6 or
8 levels down, like in a matrix, but you
can have as many people on your frontline
as you want. This has the great advantage
of being very simple to explain and to understand,
and it doesn't have the growth restrictions
that limit matrix plans. It loses the matrix
"spillover" effect, since no one
is forced to place new recruits below their
frontline. (Personally I consider this to
be an advantage -- too many people join
matrix plans hoping that someone else will
do their work for them.)
Some people believe
unilevel plans are too limited, because
of their limited depth. In reality, it's
quite possible to build a very substantial
income in a unilevel -- more than 99.9%
of MLMers have ever seen. Many people are
earning very serious money in unilevels,
as in every other kind of plan.
Due to the inherent
depth limitation of unilevels (and matrix
plans), some companies add on an additional
bonus called the "infinity" bonus.
(Note that the infinity bonus is totally
separate from the underlying unilevel or
matrix or whatever, and in fact you could
even add an infinity bonus to a breakaway
plan if you wanted to.) An "infinity"
bonus is so named because it can (in theory)
pay down an "infinite" number
In reality, it doesn't
quite work that way. Infinity bonuses pay
down to the next person in your downline
who *also* qualifies for the infinity bonus.
Let's say someone at the A position earns
a 1% infinity, a B earns a 2% infinity,
and a C earns a 3% infinity.
If you reach the C level, you get paid an
additional 3% on your downline. BUT if anyone
in your downline qualifies for any infinities,
they "intercept" the infinity
bonus for that leg and you don't get it.
So if you are a C and you have a C on your
frontline, you will get NO infinity bonus
on that leg; your frontline C gets it instead.
If you have a B on your frontline, you'll
get 1% on that leg, and the B gets the other
2%. Only on legs with no As, Bs, or Cs do
you get the full 3%.
It has to work that
way, or the company could be liable for
an "infinite" amount of bonuses!
If everyone could qualify for the full 3%
bonus with no cutoff, then a leg with 34
C's would mean the company would owe 102%
in infinity bonuses. By limiting your "infinity"
bonus down to the next infinity-qualified
person, the company in this example only
has to budget for a fixed maximum of 3%
for infinity bonuses.
So in reality you
can get paid down to the "bottom"
of your downline -- but only in legs with
no leaders, which tend to be shallow legs.
In deep legs, you will virtually always
have leaders in your downline.
Which is good!! But it means you won't get
the full infinity bonus on any deep leg.
So be wary of claims that a plan will pay
"hundreds of levels deep" because
of its infinity bonus.
companies have used variants of the "binary"
They look a bit like a 2x? matrix plan.
The major selling point of these binary
plans is that they pay to *infinite* depth.
They do this by 1) requiring you to balance
the volume on your two "legs,"
and 2) setting a maximum income level, often
$2000/week or so, on each "income center"
(position in the binary plan).
income has the effective result of limiting
the depth that binaries pay out. While there
is nothing that puts a hard limit on how
deep you can go, you can only include enough
downline to "max out" your center.
So binaries don't REALLY pay out to "infinite"
depth any more than "infinity"
But since a maxed-out
center pays more than most MLMers have ever
earned, and you can have *multiple* centers,
this isn't a real concern for most people.
legs very seldom grow at the same rate,
balancing the legs can be a real challenge.
You can also "buy multiple income centers"
in many of these plans, which basically
means you can re-join your downline to earn
additional income from additional income
centers. Which means your downline will
be your upline!
Finally, some new
companies are combining aspects of different
kinds of structures. This may result in
a plan with the advantages of both and the
disadvantages of neither -- or vice versa!
Make sure you understand
at least the basics of the plan for any
MLM you consider joining. After all, this
is where your money comes from. Make sure
you like what you're getting before you
make the plunge.
Good Luck !!