Multi-level Marketing is a strategy used by some direct sales companies to encourage their existing distributors to recruit new distributors, and the company pays existing distributors a percentage of the recruits’ sale. MLM is a legitimate business and should not be mistaken with pyramid schemes, though it is controversial to become the latter. Scams arise when an MLM sales person acts as an agent or Contractor to recruit others on a fee, promise them big money with little work and guarantee them high-income projection.
Let us discuss some flaws and warning signs to look for that are associated with Multi-Level Network Marketing.
1. Creating Your Competitors
In the multi-level marketing plan, you need to sell products to make a profit. At the same time, you also need to recruit others to sale the same products and get a commission that arises from the sales they make. This essentially means you are creating your competitors within your social circle, and this will eventually decrease your sales. The biggest flaw in MLM is the advice you get to recruit as many new members as possible.
2. Questionable Profitability
For a business to be successful whether MLM or not, its products must be reasonably marketable with sizable profits after marketing costs. The biggest worry lies with the fact that most MLM products are redundant and already available on the market. Others are overpriced when compared to national products. The brand new ones have zero reputation behind them and insufficient profit margin. To evaluate if a certain product can be profitable or not, we have to evaluate all the expenses. MLM profitability is always exaggerated making it be questionable.
3. Conflict between Active and Passive Income
One of the biggest flaws of MLM is the promise that you shall earn passive income that comes from recruiting enough people under your wing. MLM companies promise to pay you lots of money without doing anything, provided you recruit an army under your wings. The big issue here is that MLM should be about selling products and earn through active income and not recruiting to earn through passive ways.
The essence of an entrepreneur is to create something new and innovative. When MLM organizations become exploitative, their promoters are shut down for selling the fraud of impossible success to others. Additionally, pyramiding is an illegal practice when a company solicits their members to recruit more members, more than selling the product. In the long run, the main source of income for these members is based on the number of members they have recruited under their watch instead of the products they have sold over time.