Why I don't like MLM (Multi-Level Marketing) Sales

Preface: This is blog entry is not about whether or not you should join an MLM. This blog is about why I don't like MLMs and my reasons for why I don't like them. In that context, I try to provide present my understanding of MLMs and how I've come to dislike MLMs. If you have been approached about joining an MLM, you are encouraged to do your own research to see if MLMs are right for you.

What is an MLM (Multi-Level Marketing) Venture?
There are many names for it Multi-Level Marketing: Network Marketing, Pyramid Schemes, Pyramid Selling and Cross-Selling. No matter what one calls it, the essential components are:

• A primary product or service is by a parent company
• The product/service is primarily sold by independent salespeople (often called associates, contractors, franchise owners, independent agents, distributors, etc, but never employees)
• These salespeople get commissions (or royalties, residual income, etc) based upon how much they sell from the parent company
• In addition to their own commissions, salespeople also get paid based upon other people they recruit (downline)
• The "pyramid" terminology comes fromt he fact that commission amount is higher for recruiters and lower for their downline and there are less people at the top, earning more and more people at the bottom, earning less

The "Pyramid"/Multi-Level Marketing
To make any substantial amount of commissions, participants must constantly recruit new downline associates. The recruitment starts with one Salesperson A. I'm going to call this level A:

Level A: Salesperson A

Commissions from sales at the level are the highest for the product being sold. But Salesperson A will soon learn that even that is not much. To earn more, Salesperson must recruit other salespeople that form a downline.

Salesperson A then recruits, for example, 3 reps, Rep A1, Rep A2 and Rep A3 and now the Salesperson A's sales organization looks like this:

Level A: Salesperson A
Level B: Rep A1, Rep A2, Rep A3

Now, Salesperson A gets commission for what Salesperson A makes and some of the commission made by reps at Level 1. Now, Level 1 reps want to make more commission too, so they go out and recruit their own reps and the sales organization looks like this:

Level A: Salesperson A
Level B: Rep A-B1, Rep A-B2, Rep A-B3
Level C: Reps A-B1-C1, A-B1-C2, A-B1-C3 ; Reps A-B1-C4, A-B1-C5, A-B1-C6; Reps A-B1-C7, A-B1-C8, A-B1-C9

Now, you Salesperson A has 12 people in Salesperson A's organization and is earning commissions from all 12 in the organization. Of course, there are limits as to how many levels you can earn commissions from. This goes on and on until Salesperson A reaches the number of levels from which Salesperson A can earn commissions.

It's the recruitment, Stupid
The above are the essential components of an MLM sales distribution models as I understand them. That in and of itself is not a problem. As a matter of fact, I work in Marketing (the legitimate kind, :)) at a major corporation. As a marketing professional, I think the multi-level marketing as a busines model is ingenious because it allows businesses to sell products without a very expensive sales employees.

It is the recruiting process and methods that I don't like about MLMs. To sustain any kind of income, participants in MLM sales must continually invest time, money (and in some cases, their reputation) in recruiting new associates for their "pyramid" organization. Most MLM companies have rules on what salespeople can and cannot do to recruit new salespeople, but they have some similar elements.

To be continue...