Multi-level marketing (also called network marketing) is an industry—and a business model—with an image problem. And with good reason. The industry has been plagued by unscrupulous yet persuasive folks who talk the uninitiated into what amounts to a pyramid scheme. But there are honest, legitimate multi-level marketing companies. They recruit distributors who, after making a small investment, earn commissions from selling products or services to consumers. The distributors also get commissions from sales made by other distributors they have recruited. Illegal multi-level marketers pay distributors commissions just for recruiting other distributors. There is little emphasis on selling products or services to consumers because the owners make money by selling to the distributors. These disreputable companies often add to their coffers by charging new distributors for training programs, sales literature and other sales aids. Before investing in a multi-level marketing company:
- Call the Better Business Bureau and other industry watchdogs to find out if complaints about the company have been filed.
- Ask distributors who work with the company how much of their income derives from consumer sales vs. signing up new distributors. If the company seems to be focused more on recruiting distributors, look elsewhere.
- Consider whether there is a strong demand for the product or service you’ll be selling.
- Get a complete accounting of how much you’ll need to invest up-front.
Learn the businessLike any industry, multi-level marketing has its share of operational complexities that can trip up newcomers.
Is the company legal and legit?Just because a multi-level marketing firm has been operating for years, that doesn’t mean it’s reputable. Do some investigating before you get involved.
The U.S. Federal Trade Commission provides more tips for evaluating a multi-level marketing company’s credibility.