How would you like to inexpensively start your own business that could, just maybe, lead to bigger money than you’re making now? You could work for yourself and work from the comfort of your home.
That’s the allure of multilevel marketing (MLM), also called network marketing or direct selling. Well-known brands in the field include Avon and Mary Kay cosmetics, Herbalife nutrition products, Tupperware, Amway, Pampered Chef, Thirty-One and Scentsy.
Products are sold personally, often at parties hosted by the seller. Sellers make more if they recruit people to work under them, thus the name multilevel marketing.
The industry claims U.S. sales of about $30 billion, with about 16 million Americans participating.
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Is it smart to spend your money on startup fees, inventory, party-hosting, training and other expenses to get started in an MLM business venture?
The short answer is maybe, but go in with eyes wide open.
A relatively few people can do very well for themselves and make it their career — although that’s not always the goal of sellers. Often it’s fewer than 1 percent of multilevel marketing distributors who make the six-figure money often touted or intimated.
The industry’s trade group, the Direct Selling Association, puts median annual earnings at $2,400, although critics say the vast majority of sellers make nothing at all.
Joe Mariano, president of the association, said core to his group’s mission is to make sure marketing practices by members “are at the highest level of ethics and responsiveness to consumers.”
Here’s what to know if you’re thinking about trying an MLM, according to the Federal Trade Commission, the Direct Selling Association and other experts.
Avoid the pyramid: The biggest criticism of MLMs is that some can be pyramid schemes, in which distributors are compensated for recruiting new sellers, not selling products. With a pyramid, only people who get in early on the scheme make money, and the pyramid collapses when it runs out of new recruits.
Identify the pyramid: Signs of an MLM to avoid, and ones that might be a pyramid scheme, include those that pay for merely recruiting new members, rather than paying commissions based on the sale of products by sellers and those who work under them. Large upfront fees are also a red flag, as are requirements to buy large amounts of initial inventory.
Do you have what it takes? Ask yourself hard questions about whether you’re cut out for personal selling. Avoid companies that suggest that time, effort and skill are not required to succeed. That’s exactly what is required.
Do your due diligence: Research you need to complete before sinking money into an MLM is the same as if you were going to start any business — selling insurance, real estate or becoming a franchisee. Do you think the products are of value, and can you be enthusiastic about selling them? Are they overpriced or unsafe?
“Apply a healthy dose of skepticism before buying or selling products advertised as having ‘miracle’ ingredients or guaranteed results,” the FTC advises. “Many of these ‘quick cures’ are unproven, fraudulently marketed and useless.”
Do an online search of the company’s name along with such keywords as “review,” “scam” or “complaint.” You can also check with your state attorney general’s office to inquire about complaints filed against the company.
Look for the out: Examine the worst-case scenario — that the MLM is not for you. What’s the refund policy for your entry fee? Can you sell back inventory if you want to quit? Get that information in writing.