8 — New Streams of Income: Network or Multi-Level Marketing

So, you’ve got some insight into what the real, deeper you is all about (see blog 6 — Who Are You? Who Am I? for some suggestions about surfacing the real you). And maybe you’ve now got some ideas about what you’re passionate about. And maybe you’ve even got some ideas about how to base a living on that passion. Or maybe you’re not yet sure how to do that.

What I’d like to explore in this blog are some of the ways you could develop an additional income stream based on your passion…  In this blog, I’ll suggest some possible ways to do that and look at them briefly. Over the next few blogs, I’ll go into some of these in more depth and will start with network or multi-level marketing in this blog. In others, we’ll look at multiple streams of income, internet businesses, affiliate marketing, and some others.

If you’ve got something you’re looking at, let us know what you’re looking at and what questions or concerns you have.

Today, let’s look at network marketing, also called multi-level marketing. I’d like to start with a story. Becky, a good friend, is a distributor for dōTERRA essential oils (full disclosure: Becky is in my “upline”—more about what that is in a minute). She originally didn’t intend to get involved in the business side of dōTERRA oils. A friend had recommended a particular oil or oil blend for a minor health issue she had, and she found that the oil she used was so effective that she tried some other oils for health issues her husband and children had. These, too, were also cleared up very quickly.

Becky then started talking to friends about the successes she was having and found her friends obtained similar results. What resulted was that Becky found she had a real passion for helping others find alternatives to over-the-counter drugs for the minor health issues they were having, and this led her to seeing that she could convert this passion into a business where all she had to do was continuing talking about the successes she and others were having.

Becky had just entered the world of multi-level marketing! dōTERRA Essential Oils are distributed through network or multi-level marketing (MLM). What is MLM? How does it work? Is it a “pyramid scheme?” What would I have to do if I find an MLM product or service that I’m really passionate about? That’s what we’ll explore in the remainder of today’s blog.

At one time in my academic career, I started to research MLM as a possible PhD dissertation topic. At that time, academia wasn’t much interested in MLM or network marketing, so there was no academic research literature in the field. I eventually replaced that topic with another to complete my degree, but in the process I learned quite a bit about MLM and gained a newfound respect for what it is and how it could be a legitimate form of product or service promotion and distribution.

So, let’s address the questions above. What is it? MLM is based on the concept of buying clubs. The top level distributor for a product finds people who are interested in the particular product and want to buy that product. Each of them in turn finds others who are also interested in the product and want to buy, too. Each time someone you bring into your “buying club” makes a purchase, you receive a small percentage of the purchase price. If you’re in someone else’s buying club, that person also receives a small percentage of the purchase price. This process can extend to many levels deep, but the percentage of the purchase price that goes upward is limited by some number of levels (often six or seven), and the percentage gets smaller with each level above the original purchaser.

Is it a “pyramid scheme?” The short answer is, “no.” A pyramid (or Ponzi) scheme is where there are no true products involved. Someone who joins pays a fee to join, and some percentage (or all) of that fee is distributed upward to create “returns” for those who joined earlier. Pyramid schemes collapse of their own weight because there are never enough people who join later to continue to pay the promised returns to all those above them.

In 1979, in FTC V. Amway, the courts ruled that Amway was not a Ponzi or pyramid scheme. There are several requirements of all MLM companies that came from the Amway decision. Companies relying on MLM cannot:

  • Charge large membership fees,
  • Require front-end or inventory loading (i.e., having to stock large inventories of product),
  • Offer programs in which distributors are misled as to the amount of commission they might reasonably earn, and
  • Offer programs in which commissions are not based on the sale of product to the ultimate consumers.

Nevertheless, there are a number of other factors you should consider when deciding whether or not to join a company using MLM as its primary means of distribution and promotion. These are:

  1. As in any activity, club, company, sport, etc. there are only a small number of people who will be highly successful. In MLM companies, for reasons I’ll indicate below, it’s a very small percentage who are truly successful. See Empower Network’s income disclaimer, for example, where less than 2% earn more than $20,000 per year. Are you willing to put in the effort that is required to be part of that 2%, or whatever the percentage at the top is for the company you’re considering? More about this below.
  2. The product must be consumable. If there are no repeat purchases, the buying club isn’t buying and it’s necessary to continuously find new buyers in order to keep income flowing.
  3. It must offer products or services that you are truly interested in, that you will use, and that you pay competitive prices for or that are so unique that they aren’t available anywhere else. You are part of the buying club, and your purchases will result in returns to those above you, just as the purchases of those below you will result in returns to you. If you can buy equivalent products or services at much better prices elsewhere, why would you want to buy these products?

There are a number of internet marketing companies that are using MLM as their means of distribution and promotion. The only “product” they have to offer is the training you’ll receive or the right to resell joining the company to someone else. They have no true products of value. The product offered must provide value for even the bottom-most level of the chain. If it doesn’t, the scheme is a house of cards and will eventually fail. Unfortunately, the Amway ruling is loose enough that these companies can meet the FTC v. Amway “test.” So, look before you buy!

What would I have to do if I find an MLM product or service that I’m really passionate about—as Becky has in the story above? To be truly successful in an MLM organization, you have to be willing to recruit, train, and support those you bring into your “buying club.” This means that you will have to make phone calls with them to bring others into their buying club, you will have to hold meetings at their homes or elsewhere (or online) to help them learn how to show/promote the product and the business opportunity to someone else, you will have to nurture them through all their fears and reluctance to approach others, and so on. In other words, you have to be willing to spend the time teaching others about the products and how to do the business, and how to teach those they bring in about the products and how to do the business.

Is a business that relies on MLM or network marketing a business for you? Only you can decide. Here are what I believe are the deciding factors you should consider, whether the business is a face-to-face business or an online/Internet business:

  1. Are you passionate about the products and the value/benefits they create as a result of their use? Your passion will help carry you through the very hard work you will have to go through to make this a profitable business (see #4, below).
  2. If the value/benefits are minimal or non-existent, then the business fails the first rule of business success: there must be a market of willing buyers for your product/service.
  3. Are they competitively priced with similar, non-MLM products or are they so unique in what they offer that you can’t buy them anywhere else? If not, why should anyone buy them from you? Some of your customers won’t want to become distributors, but they can still join your buying club. Will they if the products are too high priced or insufficiently unique in the benefits they offer?
  4. Would you use the products even if you weren’t involved as a distributor? If not, what does that say about the benefits you’re touting to others?
  5. Are you willing to put in the very hard work it takes to build a successful “downline” (those in your buying club)? You should expect to spend 10-20 hours per week in the early stages of your MLM business to recruit and train others, and to help them recruit and train others. Will your passion about the product and its benefits carry you through this for at least six to twelve months while you are building your business?

If you’d like to know a lot more about MLM, see John M. Taylor’s “The Case (for and) against Multi-level Marketing.”

An MLM business is like any other business: it requires a lot of upfront work to get it off the ground and to make it sustainable. The same is true of online MLM businesses. More about this in another blog when I talk specifically about making money on the Internet. Over the next few blogs we’ll cover other forms of income streams, exploring what’s involved and how can you be successful.

As always, your comments are very much appreciated! In this case, I know there are some very strong emotions—both ways—about MLM. In this blog, we’re interested in your experiences, your successes, and your failures far more than your unsubstantiated opinions.