Network Marketing:
The Truth On MLM

My own experiences showed insights into the truth on MLM, also known as network marketing. MLM is the marmite of the home business world... it is either loved or hated.

Love or hate... Both are emotionally charged and hardly a professional outlook.

Advice on network marketing will always be offered freely, usually by someone promoting his or her company, i.e. biased advice or naive, or by someone who has failed i.e. bitter.

What are the facts behind the image?

This page offers some insight into this unusual home business. Network Marketing also known as multi-level marketing or MLM is still widely perceived as pyramid selling.

Virgin, Carphone Warehouse and Donald Trump could be wrong, but since the bosses are all billionaires and either have a network marketing side to their business or have backed this industry you may want to give it some more credit.

Only two companies show their payouts that I know of: Ecoquest and Melaleuca. That says something about the openness and philosophy behind the management of these companies... the statistics however are not promising.

The truth on MLM from a legal standpoint is that it is perfectly legal, so long as the company concentrates on promoting the product or service.

The truth on MLM from a producers standpoint is that it gets your product or service into the market place incredibly quickly and cheaply.

Telecom Plus PLC AKA The Utility Warehouse, went from new entrant to a turnover of £176 million ($316M) in 10 years in the incredibly competitive utilities business... by using MLM.

For producers the product or service is marketed cheaply and effectively with representatives blurring the advantages of the product with the money they will make, becoming fiercely loyal… a producers dream.

The truth on MLM as a potential home business is that... unless you are a proficient marketer or salesperson, a natural leader or someone who has a potential set of contacts... failure is almost guaranteed.

2 types were tested, a conventional forced matrix with a tangible product and a 2-up program with digital/seminar products.

In both these companies I was invited to take a leadership role, which gave an insiders insight into the truth on MLM and how the industry works.

In my opinion this industry's greatest contribution to a prospective entrepreneur is in providing marketing and sales education as well as practical experience. This in itself has a very real value.

So why does it fall down?

The same reason as most home business ventures fall down and that MLM doesn’t saturate:

Saturation

The question of saturation which should happen very quickly… does not. Starting with 5 people who have to recruit 5 new salespeople:

5 x 5 = 25, 25 x 5 = 125, 125 x 5 = 625 etc.

After 11 cycles of this the entire population would be involved. In theory it should saturate... though there are always inventive reasons why it won't... yet in practise it doesn’t, why?

‘Attrition rate, churn, contributors’

= People that will fail.

Since this produces a lot of unhappy people MLM gets a bad reputation, but what fails? The business model or it is the people trying?

It’s easier to blame than to accept responsibility, but on the other hand if there wasn’t such a high turnover it would surely saturate very quickly.

A natural salesperson can make money retailing a product if they have the 'gift of the gab' and the product is good value for money or they have a suitable set of contacts. Then this direct sales opportunity might be for them, but most people are not natural salesmen or saleswomen.

Selling Support

MLM leaders or suppliers make a significant profit from new distributors by selling aids.

These may or may not be used successfully. Leads are the biggest seller, as every new person is looking to develop a 'downline' and needs qualified prospects... but the truth on MLM leads is that they may well have been attracted through incentives, i.e. they have no idea what you are talking about or just mildly interested.

Selling leads and other promotional tools or motivational and instructional books, tapes etc is a big earner for many of the leaders.

Who Makes The Money?

Those who succeed and make large incomes do so through organising and developing a team of salespeople, they are predominantly ‘leaders’… in particular the Worker types. They can organise, motivate and drive a sales force, and they are rewarded for it.

For these naturals, MLM offers them a lucky break in that they can start using their talent for a few hundred pounds.

Most of these people would be successful in anything they tried eventually, for them it is a good opportunity. However to acquire customers and build an organisation requires skills and talents that the majority do not possess.

Donald Trump was asked what he would do if he lost everything, his answer was that he would find a good network marketing company and get cracking.

Most people will just lose money on promotions and stock acquisition

Another point of note is the culture of the country. MLM is a people business and relies heavily on the warm market.

This works well in countries that have a warmer or more outgoing culture such as Latin countries or America. Britain has a colder, more reserved national character… there is more of a ‘Paxman approach’, questioning and provocative.

Added to this is that most new people are relying on an accepted belief of what they have been told. This can produce little conviction in conversations with new prospects, and as people’s subconscious relies 80% on ‘how’ something is said rather than what is said, this produces poor results.

Commitment and consistency principles ensure that once someone promotes a product to their friends and family they cannot very well turn around later and say what they were promoting is now no good. Hence the products are likely stay with them and their ‘warm market’.

The truth on MLM is that entrepreneurs use network marketing to distribute their products.

However if you are determined to go ahead with this business due to particular skills, contacts or temperament then this case study shows some useful tips and tools for networking and marketing.

If the truth on MLM puts you off then I recommend looking at a more conventional form of marketing.