I was surprised by a recent Facebook group post that asked: “Who is in network marketing and building a team?” Very quickly, 43 members responded, and many were enthusiastic. On a different site, I read a post by a woman who was selling a diet drink on behalf of a network marketing company and the responses to her advertisement were so negative that she removed her post.
When a contact requested coaching support, he insisted that network marketing, which is also known as multi-level marketing (MLM), offers excellent opportunities to make money. Having no experience, I decided to research the subject before deciding whether it is a viable option for people who are retired, unemployed or are seeking additional income.
WHAT IS NETWORK MARKETING?
The Entrepreneur.com encyclopedia states: “Network marketing is a business model in which a distributor network is needed to build the business. Usually such businesses are also multilevel marketing in nature in that pay-outs occur at more than one level.”
You earn money by marketing the company’s products to others, and if you use the products yourself, you can also become your own customer. But the real way to make money is by recruiting a network of distributors who also sell the product, called your downline. You earn commissions on sales made by distributors in your downline. To make money in network marketing, you must know how to sell your product and also how to build your downline.
Network marketing is not pyramid scheme, because your earnings are based on the sale of actual products. UK Uncut writes: “Frequently stigmatized as get-wealthy-quick or pyramid schemes, multilevel marketing orgs nevertheless are creating solid reputations and pulling increasingly more interest from people disillusioned using the employment market, failing pensions, as well as their insufficient financial independence.”
So, should you try network marketing?
THE PROS OF NETWORK MARKETING
The proposition seems attractive:
1. It enables you to meet new people and learn new skills
2. There is very little financial outlay, so it is a low risk enterprise. You may have to invest money in products to show to potential customers, or pay a sign-up fee, but this is usually quite small (although there are exceptions).
3. The person who recruits you will become your mentor, offer you help with presentations and answer questions, and the company will also provide you with additional training resources.
4. There are many high-quality products that sell through network marketing, for example Oriflame, Avon and Forever Living, that people want to buy.
5. You can work when you like and fix meetings at a time that suits you.
6. With hard work, you can make money (but how much depends on the company you work with and the product).
THE CONS OF NETWORK MARKETING
Few people earn any money from network marketing, and many lose money. Furthermore, there are many scams in network marketing you must be careful to avoid[1].
Magnify Money Research as reported in Forbes
An article published in Forbes in October 2018 entitled 3 Reasons to Avoid Multilevel-Marketing Gigs[2], describes the results of Magnify Money’s survey. Some of the statistics:
· 20% of people involved never made a sale
· 60% of participants sold less than $500 (the equivalent of around £380) over the past five years
· Some programmes require considerable initial investment in inventory. Often that inventory does not get sold. 32% of people surveyed used a credit card to purchase the inventory. Of those surveyed who used a credit card, 15% still had not yet paid off that debt.
· 26% of participants had a fight with family members or friends because of MLM and 12% ended up losing a friendship as a result.
In October 2018, the AARP Foundation[3] reported on the results of the research they had commissioned about the experiences of current and former MLM participants. The research revealed that among the more than 20 million Americans who participate or have participated in MLM:
· 41% of respondents reported that the company misled them in describing their chances of achieving financial success.
· 90% say they got involved to make money but half (47%) lost money and a quarter (27%) made no money
· 25% made a profit. Of those that made money, more than half (53%) made less than $5,000 (equivalent of around £3,800).
· 6% made between $5,000 and $9,999 (around £3,801 - £7,600)
· 3% made between $10,000 and $24,999 (around £7,601 - £19,000)
· 3% made $25,000 or more (£19,001+)
Only three individuals, half of one percent, reported profits of $100,000 (£76,000) or more. All three individuals worked as direct sellers for the company for more than 5 years (and one person for more than 20 years) and put in between 10 to 40 hours of work per week. One of the individuals reported that he founded the organisation.
The three most common reasons for leaving an MLM were:
· finding it awkward to pitch to friends and family (39%)
· not making as much money as they expected (36%)
· not liking to sell all the time (35%).
The full research report can be found here.
BBC Investigation
In February 2018, the BBC investigated MLM by interviewing women who have taken advantage of MLM opportunities. It found that while some have been successful, others have lost thousands of pounds. “We hear some of the success stories, as well as women who say they have lost thousands of pounds. Mumsnet tells us that its users are so worried about multi-level marketing that in the past couple of years there were between 20,000 and 30,000 posts about it on the site. MLM adverts are now banned from Mumsnet.” I recommend you watch the BBC video Hun, this could be your opportunity to get rich .
SO, SHOULD YOU CONSIDER NETWORK MARKETING?
Few people make money from network marketing and they must work hard for many years to make it. But in the article entitled 10 Tips to MLM Success the Balance Small Business states: “…that's not necessarily the MLM business' fault. Most athletes never make it to the Olympics, but that's not sport's or the Olympics' fault.”
Having researched network marketing, I wouldn’t recommend it because your chances of success are so low. On the other hand, if you believe it is right for you, then I do recommend you read 10 Tips to MLM Success and then visit the AARP Foundation’s executive summary of their research. You can also download useful materials from their educational toolkit designed to help you make informed decisions.
In my next blog post I am going to investigate affiliate marketing, which I may suggest to my coachee as an alternative.
Best wishes
Viv
Note: The AARP Foundation refers to US organisations. In the UK you can also get advice from The Chartered Trading Standards Institute and the Direct Selling Association.
[1] Beware of companies that request high investments with no real return. You need to do thorough research to avoid scams and fraud.
[2] Written by Nick Clements of Magnify Money.
[3] AARP Foundation works to end senior poverty by helping vulnerable older adults build economic opportunity and social connectedness.