7 Network Marketing Truths You Must Know: do you recruit people to join or sell products as MLM member?

Network Marketing, Multi-Level Marketing, Direct Selling... they go by various names, but they all describe the same system... Which we will just call "MLM".

So what is a MLM? Start with a normal business. A company has some stuff to sell. Before the existence of media outlets, such as TV, Radio, Billboards, and so on, they pay a bunch of sales reps (consultant, advisor, distributor, member, associate...) to sell the product to people. That's a typical sales scenario. Tupperware was there long before MLM. You buy stuff from the company at wholesale prices, sell it locally at retail, and pocket the profits. There is no middlemen, so it is direct selling. As a traveling salesperson, you operate with low overhead, no storefront to worry about.

However, there's a problem for the company as that not all sales rep are equal. Some are good sellers, others are not. The company have to manage all the different reps, and it is complicated. Then someone came up with the idea... Why not let the reps manage other reps? Just reward the rep who recruited good reps by giving them a share of the profits. The more "lower" reps (the recruitee) sell, the more "higher" rep (the recruiter) make in bonus. So the recruiter has the incentive to recruit good people, which benefits both himself and the company. Thus is born "multi-level marketing", or MLM. The recruiter became known as the "upline", and the recruitee became the "downline".

Later, when MLM was associated with some pyramid schemes disguised as MLMs, the term "Network Marketing" was used.

Most MLMs are done wrong, pitched as a get-rich-quick scheme, and quickly collapse, leaving its reps up the creek without a paddle. Furthermore, many scams disguise themselves as MLMs, further confusing the issues. Studies have shown that in the 30 largest MLMs OVER 99% of participants actually posted a LOSS!

Here are a few things you need to be aware of before you join a MLM.

To succeed in multi-level marketing, you have to SELL things, and sell a LOT of things. Marketing means sales. If you already have the gift of gab, and can convince people to buy things from you, congratulations. You may have a chance. If you can't sell, and are not a people person, then you have a long way to go before you can succeed in a MLM, and you may want to consider another path.

And if you were told you don't need to sell anything, just recruit, it's a "pyramid scheme".

One of the big controversies with MLM system is about cost of marketing. The company is basically passing on the cost of marketing AND some of the profit onto the reps to let the reps do advertising. Did the company actually pass ENOUGH profit for the reps to do so? You can probably recruit the first few customers or reps for your "team" for little or no cost from your circle of friends and family, but most cannot expand their clients or team beyond that without expending noticeable amount of money on marketing. This lead to some MLM critics charge that most MLM companies are only out there to exploit this "free marketing / recruiting". It is not far from the truth, but it's not the complete truth either.

If you cannot sell the the product to a stranger, perhaps you cannot sell the product at all. Selling to friends and family does NOT count. Most will buy some from you because you asked, but that will cost you somehow, just not in $$$.

Many prominent studies show that vast majority of MLM reps (> 99%!) actually LOSE money, as they vastly underestimated the cost of marketing, and/or vastly overestimated the size of potential market / prospect pool for the product they are trying to sell.

EXAMPLE: Penn & Teller's cable show BULLS***! Season 8 Episode 5, titled "Easy Money", is a condemnation of MLM. Take the ManCave rep for example. He is expected to host the party, provide all the booze and meat and snacks and whatnot. Even with the high margins on the few items he did sell, he barely broke even on that event. When you throw in the time taken, prep time, and clean-up, he probably would be better off working at McDonalds. Another guy spend 12 hours a day promoting this nutritional drink for 9 months, and actually LOST money, instead of made any. And these are typical results. Studies have shown that over 99% of participants in MLMs lost money!

Just because the product is "cool" or "unique" (i.e. niche) does NOT mean you can sell it. You may not have the right mix of potential customers in your area... Or you simply may not have access to that pool of prospects. You better figure this out BEFORE you join, and plunk down money for the "intro kit".

Again, how would you access that pool of prospects? How much marketing $$$ and/or time would you have to spend? What do you expect the conversion rate to be? (I.e. out of how many pitches will you make a sale?) Will you make enough on the sales to justify the marketing dollars spent, and make a profit? Most product literature always make it sound like the Second Coming... If it's nutritional supplement it will cure every ailment under the sun, from AIDS to gout (just kidding). If it's cosmetics it'll make you 20-30 years younger. However, do people really NEED that, or just WANT that?

This is the danger of those miracle juice / pill MLMs. Those products are actually luxury items. People WANT it, but NOT NEED it. You have to convince people that they need this product for their well-being. In depressed economy, market for luxury items dry up, yet it is during these times that recruiting hits fever pitch, as prospects are more... vulnerable / susceptible to recruiting speeches about having a "secondary source of income".

Also, consider the product type... Does the product get used up? Or just used? Cosmetics, nutritional supplements, and so on are consumed, so people who like the product will always order more. On the other hand, some products simply do not lend themselves to repeat business. How many sex toys or personal alarms would someone need?

EXAMPLE: I had a friend who was recruited into selling Quorum personal security items, like bike locks, personal sirens, etc.. It is a dead end as each person would only need one, so he has to constantly look for new clients. There is virtually no repeat business. It was much harder work than he realized.

Also, the business opportunity itself is NOT the product. If any one is selling that as the product, it's a scam. That is selling membership in order to sell... more membership.

Product makes all the difference. Calculate the market for such products, and discount any hyperboles or upline / company projections on sales. They are always too optimistic. THEN calculate the cost to reach such a market in your area.

In the term "network marketing", the primary word is MARKETING, not network. Network is an adjective, modifying "marketing", and thus is secondary. Primary purpose of network marketing is to market a product, and ultimately, to sell a product. SECONDARY purpose of network marketing is to establish a network of reps to form a team in order to expand sales.

It is easy to make the wrong emphasis, as it portrays the "easy life"... just sit there and let your team do the sales, and you rake in the $$$. However, it is also a lie. Finding the right people to recruit is not that simple. It takes more than passion to sell, and selling large amounts isn't easy. Most of these bonuses are less than 10%. If your downline sells $1000 worth of merchandise, you may pocket up to $100. However, if you sell the same amount of merchandise, you can probably pocket quite a bit more, as the margins on MLM products is typically 100%. (i.e. $500 profit on $1000 sales).

Legitimate MLMs, in order to reduce to reliance on sales commission from uplines, and encourage the upline to actually sell something, limits the level of downline sharing, on either a reducing scale (the further the downline, the lesser the share) or impose a cut off (no sharing after 5th level, for example). If you see a MLM that promise to share "infinite levels", or allow you to stack (i.e. buy multiple positions), that's very likely a scam, since it emphasizes recruiting over actual selling.

If any one who's trying to recruit you emphasizes recruiting over marketing a product, that person is doing it WRONG, unless the company itself also has the same emphasis on networking / recruiting, in which case the whole thing is probably a scam.

EXAMPLE: TVI Express, whose FAQ specifically states "You don't need to sell any products", was declared a pyramid scheme on three continents. It has no sales, and was all recruitment.

The American Federal Trade Commission (FTC), which oversees consumer affairs in the United States, has a "Koscot Test", which contains a criteria that requires any MLM in the US to calculate bonus to be at least 70% based on actual sales (by a downline), and less than 30% based on recruitment (of the downline). MLM not compliant with this risks being ruled a pyramid scheme and shut down.

Emphasis must always be on sales, not recruiting. Any one not doing so is either doing it wrong, or scamming.

Your upline is your boss in this business, and your success depends on finding the right one. He (or she) should teach you what you need to do to succeed. To that end, he should show you, by example, how it's done. Eventually you need to pass on the knowledge to those you recruit yourself.

If he is not teaching you, not arranging team meetings where techniques can be shared, doing more recruiting than selling, or other problems that make you uncomfortable, you're either with the wrong upline, or in the wrong business.

Your upline/ boss should also be ethical. All legitimate MLMs have "code of ethics" which all reps must agree to upon joining, and any deviation may result in investigation and even dismissal. If your boss is using logical fallacies, unverified claims, or any unethical behavior to score a sale or recruit, you should run away as fast as possible. It may be endemic in the company, or it could just be your upline, but again, beware.

A good upline would allow you to shadow him for a few days to see how he does business, and is willing to answer questions on how long had he been at this, how much he had made from sales, and so on. Honesty is important. If you're being recruited by someone who's only been at it for three weeks, have yet to make a sale, then you're dealing with a scammer.

The ethical way of recruiting is only recruit an existing customer. If someone presents the biz immediately as an "money making opportunity" out of the blue, and barely mentions the product, he's doing it wrong (see #3 above), and is not behaving ethically.

Your upline should be a mentor out to teach and inspire sales, and must be ethical and honest. Treat him like a boss. If the boss lies and cheats, leave.

MLM reps will often market toward the people who are desperate for more income, not enough savings, knows nothing about owning a business or franchise, knows only how to work as an employee (i.e. follow orders), knows nothing about selling, and wants quick money with minimal work. These people will jump at a "money making opportunity", and would be easy to recruit, and maybe even score a few sales by pushing the "intro kit".

What they don't realize is that these "easy marks" would make very bad sales reps in general, and MLM reps in particular, because they can't sell. The sell the wrong things (recruitment instead of the product), at the wrong time and/or in the wrong situation, to the wrong people, and generally let their desperateness show, driving away potential customers.

Furthermore, the way a "team" works often devolves into a personality cult, where the upline becomes a cult leader indoctrinating all downlines, and the desperate are often eager to embrace a personality cult as they need to follow a leader, being a E quadrant personality (according to Robert Kiyosaki in the Cashflow Quadrant, E = Employee ). This often leads to problems if the leader is not completely ethical. Like attracts like: these desperate people simply recruit fellow desperates, none of whom actually know how to sell, and the team (including the leader) just go on recruiting more desperate people. This essentially turned a MLM into a pyramid scheme, with little with any sales.

Some of these leaders may even order their downlines to ignore all criticism, all "negativity". No doubt of the MLM and the leader is allowed.

"Easy Marks" are also vulnerable to dogma and logical fallacies presented as "facts" in during a recruitment meeting and subsequent meetings. Such folks, when they "wake up", blame their upline, their MLM, and the entire MLM industry for their failures, and becoming poison pills to the whole MLM industry.

If you are an "easy mark", do NOT join. People will simply take advantage of you. Do NOT join MLM if you are desperate for another source of income, looking to get rich quickly, and so on. Nothing wrong with having goals, but your vulnerability will show and unless you are lucky, you will be taken advantage of.

MLM is "work by remote". Any official training, if it exist at all, is done remotely via VHS tape, DVD, and Internet streaming video, or if someone has time, video conference / webcam. Thus, there really is no ethics police to make sure all the reps are behaving ethically. Legitimate MLM companies have code of ethics which all reps must agree to upon joining, but enforcement is haphazard. In a regular company supervisors will keep eyes on the reps with periodic reports and mechanism for customers to complain to higher-ups. In a MLM you have to complain straight to the company's ethics panel or customer service.

In a regular company, to be employed, you have pass an interview and probably a background check, and even a second interview. For a MLM, you pretty much just buy the intro kit, fill out an application, and that's it. There is no initial culling process in a MLM to weed out the unscrupulous recruits, who then becomes unscrupulous leaders by recruiting people.

Most MLM reps will not outright lie, but many will equivocate, perhaps unconsciously, that they emphasize the parts easy to sell such as "sit there and let the team sell things while you reap the profits", and simply... neglect to mention the parts about hard work selling stuff yourself.

The truly nasty ones will recruit you with lies, get you to buy the intro kit at inflated prices, then leave you to fend for yourself, and convince you it's YOUR FAULT that you can't sell anything, because selling is so obvious, and you should have dragged all your friends, neighbors, and family into this already (so he can make his sales bonuses).

Furthermore, the way a "team" works often devolves into a personality cult, where the upline becomes a cult leader indoctrinating all downlines, and the desperate are often eager to embrace a personality cult as they need to follow a leader, being a E quadrant personality (according to Robert Kiyosaki, the E quadrant is employee personality). This often leads to problems if the leader is not completely ethical. This essentially turns a legitimate MLM into a illegal pyramid scheme that preys upon the new recruits.

One more problem is the lack of oversight means how would the company regulate what is being said about the company by its reps, and what should it do? The legitimate companies would limit its reps to only pre-approved marketing material. The not-quite companies will allow its reps to say almost anything. 

This lack of oversight has also lead a huge number of scams to disguise themselves as MLMs, by adopting the same buzzwords (matrix, payout, upline, teamwork, etc.) and emphasize recruiting and barely mention selling anything. You "work hard" by recruiting a lot of people, and ignore selling. This also lead to a secondary market of "marketing coaches" that try to teach people how to recruit. Many of these coaches are also MLM members, making their tactics very shady. (And a scam would not care about the company image at all)

There are many unscrupulous uplines in legitimate MLMs, as well as many scams disguised as MLMs. Watch out for both.

MLM system attracts unscrupulous and vulnerable personalities due to its nature. I would recommend you NOT to join MLMs despite what the recruiters tell you. Too many of them are telling half-truths or outright lies in order to recruit. This, plus all of the other problems, makes MLMs just too dangerous to people who are not familiar with the business model (and those who are familiar with the business model would never join).

If despite my best efforts to convince you otherwise, you are NOT dissuaded from joining, you should study it thoroughly for at least a full week, if not a full month, before joining. You cannot based your near future on a short one-hour presentation or some people's words. Always be a skeptic when it comes to promises. You must investigate ANY claim yourself. Any statistic or claim can be faked or be incomplete truth.

You need to shadow the upline, learn how he or she goes about his or her business. If you have any doubt about his or her ethics, then this business is not for you.

If you have any remaining doubts, you should not join. After all, your future is riding on it.