Is a multi-level marketing program right for you?

Starting a MLM Business

by Gary Foreman

What do you think of MLM businesses? I have been approached by an IBO. As much as I'd like to do it, I am still ambivalent. In addition, it's hard to do in-depth business research on the net. The stories might be true or not. I want hard reliable evidence, so I can be sure that the business would be good for me.

Many of us have asked the same question. Could I make money in a multi-level marketing (MLM) program?

It sounds as if Lorena's IBO (Independent Business Owner) friend has told her how much money she can make. They'll probably have charts, graphs, testimonials and projections. And will explain how she only needs to make a few sales and sign up a couple of IBOs to have a steady income. I'm sure that her friend believes every word that he or she is saying.

But any business start-up should be carefully considered. By some estimates, four out of five fail, so Lorena is wise to move cautiously.

Plus, the structure of MLM is the same as the structure for a pyramid scheme. That's not to say that all MLMs are pyramid schemes. They're not. But, sometimes it's hard to tell the difference until you get familiar with the organization.

So how can Lorena tell if she should go forward with the offer? I'd suggest that she answer three questions. Only if she can answer all three with a "yes" should she proceed.

First, Lorena must decide if she's cut out for multi-level marketing. Her IBO friend will say that she'll need to be intelligent, resourceful and motivated. All of that is true.

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But, Lorena will also need to be the type of person who enjoys meeting lots of people. And, she'll need to try to pitch those people on her product. Even if it means losing some of them as friends.

She'll also need to be able to handle lots of rejection. Any honest salesperson will tell you that they fail more often than they succeed, especially when promoting MLMs.

Is Lorena prepared to operate a business? Running an MLM is easier than starting many other small businesses. But, it will require lots of time, effort and energy. Will Lorena begin to resent evening "motivational meetings" that take her away from the family?

Next, Lorena needs to evaluate the company. Will it provide a quality product and support her efforts for the long haul?

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If the company is publicly owned, she'll want to check its financial reports. If it is privately owned, consider their financial reports with suspicion. The reports are only as good as the people who produce them.

Find out what percentage of the "business owners" renew after the first year. If you can get an honest number, you'll get a feel for the failure rate of IBOs.

Divide the total sales by the number of IBOs. That will tell you what the average IBO sells. Compare that to the projections that you're given. If the projections are much higher than the real numbers, try to find out why that's so.

Related: Creating Multiple Income Streams

Compare the revenue of "real" products to the amount spent on "motivational" tools. If you can't find it in the company financial statements, it could be that the company doesn't want you to know.

Ultimately, Lorena will need to decide whether she's willing to trust the company with the business she's building. If they go under, she's out of business. And if they change the commission structure, there won't be much she can do about it except start over with another company.

The final step is to look at the products or services offered. One problem with many MLMs is that they don't offer a unique product or service. Not only are there many competing products in stores, but also there are many other people trying to sell the same thing you are. The only advantage you have is your personality and willingness to work harder or smarter.

Lorena might want to ask herself how many different products she buys from MLM businesspeople. Probably not very many. Remember that you'll be asking people to change their existing buying habits. They won't do that without a good reason.

Only if Lorena is comfortable with herself, the company and the product should she go forward. You'll notice that there are very few MLM success stories. If it were as easy to succeed as most proponents claim, you should find quite a few MLM companies that have reached widespread success and know people who are living large on their MLM commission checks.

Reviewed January 2018

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Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, and Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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