Network Marketing Explained – The Ugly Truth Behind MLMs
If you are reading this, you might know someone who is trying to recruit you, and you’re close to being convinced by their pitch.
It’s fair – most MLM recruiters are convincing, and they make it seem like their company is the magic wand of success.
If you’re hesitant, you’re probably also familiar with multi-level marketing, which is also widely known as MLM or network marketing. That tinge of worry and doubt in your mind is a good thing; it keeps you alert and aware of being scammed out of your money and lifestyle.
The common MLM business model is also referred to as pyramid schemes and Network Marketing. The model has taken many forms over the decades as the Federal Trade Commission continues to crack down on illegitimate operations.
In this article, you’ll learn everything you need to know about the ugly truth behind network marketing schemes.
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Table of Contents
How Does Network Marketing Business Work?
MLM schemes have gotten better at disguising their company’s true nature: that they are indeed MLM or multi-level marketing schemes. They will offer overpriced products and have recruits use a website or portal that makes the company look even more professional.
Different MLM companies offer different types of products.
Some don’t offer any products at all.
Some will organize events that show how grandiose and successful their distributors are.
Regardless of the product or service type that a company sells, the fact is that they all primarily rely on recruiting new distributors. They will recruit more people who will then, in turn, recruit other people.
All of those recruits “invest” their hard-earned money to be able to get into the company in one way or another, and the cycle continues as they are asked to recruit others into the same scheme.
The Disadvantages of Network Marketing
Below are some disadvantages many people have experienced in their time with network marketing schemes:
- It’s Difficult to Make Money
Not only is it more difficult to make money than your uplines might lead you to believe, but they’ll blame it on your mindset if you’re not careful. If you can’t sell or don’t like it, you get booted to recruiting distributors.
Over half of the people who join network marketing companies lose money on the endeavor because the fees to get started are so high, and it’s difficult to sell to an over-saturated market.
- It Requires a Significant Up-Front Investment
Most of these companies will require you to make a significant investment of product upfront. Sometimes this is in addition to the initial fee to join, and you might be taken by surprise.
It can feel like a loss to back out once you’ve already paid a fee to join, but this is a warning sign to get out while you can.
You already know it’s going to be difficult to sell overhyped, proprietary products of low quality, so why double-down on the endeavor when you could start a much more legitimate operation?
- You Burn Out Your Personal Network
Probably one of the most significant drawbacks to joining a company like this is you are encouraged to pitch these products to your friends and family members.
Unfortunately, this can burn through your individual network and can reflect on you as a person. MLM and network marketing companies have a bad rep because of their shady practices, but also because nobody likes being taken for a fool by their own friends.
When using your network, it’s important never to oversell. Your friends don’t want to be pitched to a million times, and they’ll start avoiding you and your new entrepreneur business as well if you’re not careful.
- You’ll Feel Pressured to Make Sales
In most network or multi-level marketing schemes, your uplines’ bank accounts directly rely on young distributors like you making sales and recruiting new distributors. They’re going to do their best to make sure you’re making sales, and this can make you feel pressured.
If you don’t make enough sales, even if they’re small, they’ll try to convince you to start recruiting others into the program to make up for the lost quotas.
- It’s Not as Flexible as You Were Led to Believe
One of the driving forces that persuade people to join network marketing companies is that they can spend more time with their family while making more money than they could at a regular job.
Unfortunately, this isn’t the case in most direct mlms, and you can easily end up spending more time than you would with any other job just trying to break even on your initial investment.
- You Won’t Feel Fulfilled
When you’re living the Network Marketing life, you might struggle to feel fulfilled. In these schemes, you are often led to believe that success is dependent on your effort in a 1-to-1 ratio.
What they don’t tell you is that you won’t be doing any meaningful work, and most people don’t want to join a network scheme, so you’ll have more difficulty making sales than they let on.
These are just some of the main disadvantages that come with joining a network marketing company. There are a lot of disadvantages to network marketing, and I’m sure I’ve missed quite a few in this list. If there are more you can think of, drop a comment at the end of this article.
What they don’t tell you is that you won’t be doing any meaningful work, and most people don’t want to join a network scheme, so you’ll have more difficulty making sales than they let on.
These are just some of the main disadvantages that come with joining a network marketing company. There are a lot of disadvantages to network marketing, and I’m sure I’ve missed quite a few in this list. If there are more you can think of, drop a comment at the end of this article.
What Makes Network Marketing Dangerous?
MLM schemes that offer products can operate legally as actual businesses, and some even have offices in primary business districts all over the world. Since the advent of social advertising, distributors are boasting their success in an even wider network.
The actual details of the business can vary, but one of the main telltale signs that a person is working with a network marketing company is when his or her social media accounts are filled with posts that exude extravagance. (1)
Newer recruits may pose together with more established leaders in the company – leaders who drive expensive sports cars, live in huge houses and travel the world.
Meanwhile, more experienced recruiters may already have their luxury items to show their “success.”
The unfortunate truth is that the social buzz is faked. Network marketing schemes often give their recruits information about how they should act on their personal social pages, never allowing them to post anything negative – the like metrics are more important.
This is so the recruit can give buyers the impression of success and a happy life – all because of one company that they joined.
Here are several reasons why network marketing schemes are dangerous:
- Pay to Join Model. You need to “invest” to join mlms. If you don’t pay, you’re not accepted. Many people feel pressured into paying because they would be “losing out on a great opportunity.”
- Minimum Inventory Count. Once you’re in, you’ll have to buy a certain amount of product to keep your account active. You can purchase these products either for your use or reselling. Problem is – these products are usually costly, making them hard to sell, but if you don’t purchase, you can’t get your commissions.
- Can’t Meet Your Quotas? Make Someone Else Do It. To make up for any deficit in profits, a member will need to recruit others to get commissions.
- Recruiting is Required. At the end, with all mlms, it’s a MUST to recruit new members and to make sure that your recruits continue to recruit.
- Saturation is Always a Problem. Even if you’re good at selling and recruiting, you’ll be faced with another problem: saturation. If your local area is already full of members, who else can you recruit? The upline or recruiter who convinced you to join won’t tell you about it until you find out too late. What happens when the people you thought you could recruit are already members? Apparently, you’re not the only one who thought they would be good recruits.
Some people are blinded by the fact that the company’s primary income comes from continuous investments, not product sales. It’s only at this point that people start realizing it’s time to leave. This is the main reason why many who have invested but are unable to recruit continuously do not realize the success they thought they’d experience.
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Is MLM or Network Marketing an Entrepreneur Pyramid Scheme?
The story will always be the same – the products the company offers are government-approved and have been seen as effective according to some obscure study.
There can be some truth to that, however, the products are usually overpriced and overhyped.
Furthermore, as a part of the sales presentation, the recruiter will tell you that they’ve chosen the company so they could enjoy financial freedom, and they want you to experience that as well.
They are always willing to share with you the “secrets to success” but only if you invest in the product. It can be difficult to say no to the MLM or multilevel marketing schemes if it sounds good enough. Unfortunately, it’s almost always too good to be true.
Network schemes place greater importance on recruiting than MLM companies, and network schemes companies are often synonymous with more illegal business models, which is why you should be careful if you subscribe to any direct selling company that wants you to recruit new members.
If It Works, How Do You Make Money in Multilevel Marketing?
Well, that’s just it. Distributors don’t really make the money, so the answer depends on where in the pyramid you will be, even if it’s a small business.
Of course, you’ll almost always start at the base. However, if you want to know how much money you could potentially make balanced with the inventory content, it’s important to look at how many levels are already on top of you.
If your area is already saturated, then you’ll have a hard time looking for people to recruit, until you lose interest without enjoying even a tiny percent of the financial benefit promised to you.
In fact, most MLM participants never make a substantial amount of moo-lah, and only a tiny percentage of all business owners make money through MLM.
Over half of all network marketing recruits wind up losing money on their initial investment, even if they are top tier distributors who sell a lot of products. Distributors success is almost entirely fabricated on social platforms, and business isn’t as grandiose as they make it out to be.
In most cases, your chances of making enough money to live a luxury lifestyle through a network marketing company is close to nothing.
References:
- Sara Silverstein, People Who Sell for Multilevel Marketing Companies Look Wildly Successful on Facebook, but the Reality is Much More Complicated, https://www.businessinsider.com/mlms-use-social-media-facebook-portray-financial-success-2019-7
I buy and review courses so you don’t have to. Sometimes, I even find courses that are legitimate and worthwhile; and that’s how I accidentally came across one that led me to building a 6-figure business in a little under 5 years. Now, I still review courses because it’s my favorite hobby. 🙂 Learn more about me here.
