The Pros and Cons Of Multi-Level Marketing


Warrior House News | By Shannon Sanford
Posted: 10/05/2015 02:05GMT | Updated: 5 years ago

Most of us are familiar with popular Multilevel marketing names such as Herbalife, Avon, and Amway.  Multilevel marketing (MLM) can be defined as a strategy that various direct sales companies use in order to inspire their distributors to recruit additional distributors.1  Distributors earn income by: (1) Earning commission from their own retail sales; (2) Earning a percentage of sales made by people they have recruited to sell their products; (3) Earning a percentage of sales from distributors who have been recruited by their own recruiters.2  The following are the pros and cons related to multi-level marketing:

 

The Pros and Cons Of Multi-Level Marketing


PROS:

  • Unlimited Potential.  MLM has a lot of possibilities because there are many ways to earn money including earning small commissions which can turn into large paychecks.3
  • Opportunities Are Available.  Opportunities exist to find programs that are reputable and that offer products that have a high demand and sell for a reasonable price.
  • Easy To Operate.  It can be much easier to manage a MLM than many other types of companies, especially if it is operated on an internet website.  In addition, you can set your own hours.
  • Recruitment Possibilities.  There is always the option of being recruited into a popular network with pre-existing customers, which will make your job much easier when it comes to selling products.

 

CONS:

  • Huge Investments.  It is very easy to be trapped into advertising, spending extra money on products, and party hosting which can end up costing you a lot of money in the short-term and may never pay off in the long-run.   In addition, there are times when distributors who join a company in the late stage of operation are not even able to sell all the items in their starter kits.
  • Low Commission Fees.  Some MLM programs will not offer commissions that are large enough to cover everything unless you happen to have a large network.  In addition, there are times when the market for very popular brand names is already saturated with distributors who have already established territories and clients.  In fact, most MLM companies require that each distributor must recruit a certain number of new distributors, obtain a certain amount of sales, and buy a specific number of products before he or she is eligible to earn any money.4
  • Recruiting Is Your Responsibility.  It is your job to recruit people to buy and sell your product because contrary to what you may have heard, your MLM program will not sell itself.3  So, be prepared to invest a lot of time to help get the local branch of your MLM off the ground.  The majority of multi-level marketing companies tend to rely on word-of-mouth sales as opposed to advertising by the mass media.
  • A Bad Reputation Could Cause Problems.  If for some reason your MLM product or brand earns a bad reputation, then you could be left with a product that you are unable to sell and lose an investment that you cannot get back.
  • People May Choose Not To Purchase.  Many people that you invite to your on-site promotional parties will show up for free gifts but will not be interested in buying your products or joining your sales and distribution team.
  • Determining The Difference Between MLM companies and Pyramid Schemes.  Distinguishing the difference between these two types is not always easy.  Some pyramid schemes like to masquerade as MLM companies.  Typically, if the money that you earn is based on sales to the public, it might be a legitimate MLM.  However, if the money you make is determined by the quantity of people you recruit and the amount of sales that you make to your recruits, then it is a pyramid scheme, which is illegal.  Please refer to the cnbc.com website for more information.5

 

As you can see, Multi-Level Marketing has various pros and cons that are associated with doing business.  For more information regarding some good questions to ask before taking the plunge into multi-marketing, please refer to the ftc.gov website.6

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1 http://www.investopedia.com/terms/m/multi-level-marketing.asp

2 http://factsaboutvemma.com/wp-content/uploads/2014/06/Pyramid-Scheme-Rebuttal.pdf.

3 http://www.ladyluckmedia.co.uk/blog/the-pros-and-cons-of-multi-level-marketingprograms.171.asp#.VT2FtCFVikp

4 http://cashmoneylife.com/multi-level-marketing-business-opportunity-or-a-scam

5 http://www.cnbc.com/id/100364484

6 https://www.ftc.gov/tips-advice/business-center/guidance/multilevel-marketing

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Shannon Sanford

Shannon Sanford

With over thirty years of writing experience, a MBA, and a BS in Psychology, Shannon has written on a variety of topics including: Business, Health, Science, History, Human Resources, Psychology, etc.
Shannon Sanford

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