Home Business: Network marketing or pyramid schemes?

The Black Sheep of Home Based Businesses

When people think of home based businesses, and have a negative reaction, it’s usually because of a past experience with a network marketer. Network marketing has such a poor reputation when it comes to home based businesses. Yet it’s one of the fastest-growing forms of home-based businesses in the world today! It’s a $100 billion dollar industry, for a reason.

What is network marketing?

Network marketing, aka multilevel marketing aka MLM, is when manufacturers make their sales force into independent contractors, rather than in-house employees. The industry is almost a hundred years old, and it’s popular, because, in it’s very basic format, it works.

Generally, a manufacturing company uses these independent contractors to publicize and sell their products or subscriptions to the public. The contractor in turn receives a commission on every sale. He also receives a commission when he recruits others to sell with him. This allows a dedicated contractor to build his own sales force or team, and together they can generate more sales-based income than each could individually.

Isn’t network marketing just a pyramid scheme?

From the outside, there’s not a lot to tell the difference between genuine network marketing and pyramid schemes. You have to look closely. A pyramid scheme is just money changing hands, without a product or service being involved. If the multilevel marketing representative doesn’t make most of her money from the direct selling of products or services to an end consumer, there’s a problem.  And in most countries, it’s illegal. In the US, the governments are starting to come down hard on certain well-known MLM companies, for skirting the line between network marketing and pyramid scheme.

Can you really make money with an MLM?

Yes.. and no. Like any business, the income you make is totally dependent on your own efforts. MLM representatives are often guilty of exaggerating the money potential and minimizing the work involved. This can lead many people into thinking that they can “work” from home for an hour or two a week, and the money will just roll in. When it doesn’t, they can feel cheated.

MLM’s make money for a lot of people. How much money is a different story. In every industry, only a few people make the majority of the money (ie. the CEO makes a 7 figure salary, while the front-line worker barely makes minimum wage). Network marketing isn’t really all that different. The celebrity multilevel marketers that make the million-dollar checks are one-tenth of one percent (1/10 of 1 %, or 0.1%!!) of the total number of contractors in any given company. So if you think you’re going to be one of those few.. you have better chances of winning the lottery.

That doesn’t mean you can’t make money though. Many MLM representatives make an extra few hundred a month. The problem is, it may cost more than they make to stay in business. They do their MLM business for reasons other than the money, usually.

How do you tell the good from the bad?

Well, first of all, don’t believe everything you read online! If you looked up every network marketing company out there on a review site, you’d probably find a complaint or warning that it’s a scam. Generally, however, these are people who either didn’t read the fine print, or went into it expecting easy money.

There are ways to tell the good companies from the ones that will leave you broke. First, do they have a genuine product or service? Can the representative who is trying to recruit you tell you exactly what their company does to make money? And it can’t be buzzwords like “empower moms to stay at home with their kids” or “make retirement possible for the baby boomer”. It should be “they make xyz products” or “with your subscription payment, you have access to abc service”.

Second, is the company registered with a direct sales association, the Better Business Bureau, or other voluntary regulatory organizations? And do they have good reputations with those organizations? A company that has an F rating with the BBB may be one you want to steer clear of.

Third, do they have a national or international headquarters? A PO Box isn’t exactly a reassuring sign of legitimacy.

Read the fine print! 

As with any other contract, when signing up to join an MLM, you need to do your due diligence. Read the contracts over thoroughly before signing. And don’t just take your recruiting rep’s word for it. Read it for yourself. Most MLM contracts have a 10- or 30-day cancellation and refund policy. So take your time and make sure you know exactly what you’re getting yourself into.

First, you want to make sure you know what you have to do to make a commission. Do they have a quota amount before they pay you? Is there a minimum amount of sales? Are there purchasing requirements? What are the limitations for sales and marketing? You need to know all of the details. After all, you don’t want to go to all the work of selling a product, just to find out that you broke a rule and your payment is voided.

Second, is it a product or service you can actually defend? Make no mistake. To be a network marketer is to sell something, no matter what they say about “sharing” or “referring”. All businesses require sales, though, so that in itself is not a reason to avoid network marketing. Your concern should be about the product or service. Is it something you can believe in and get passionate about? It’s difficult to sell something you don’t like. So at least pick something you like!

Third, what are your costs? Many MLM’s will have hidden fees. You may be required to purchase a website directly from them, rather than being able to build your own. You may have to purchase so much of their product yourself for personal use, before you can sell to others. Find all the costs related to your contract with the company.

You can make it work!

Network marketing can make having a home-based business accessible to anyone. Network marketing is usually affordable, and relatively easy to do. Plus, with network marketing, you usually get support, and make friends. Many representatives stay with their companies because of the friendships and relationships they’ve made, not because they happen to be making much money. However, if you treat it like a hobby, don’t expect it to pay you like a business. You get what you put into it. But you can make it work, if you treat it like a real business.

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