“Work from home! Earn thousands of dollars per week!” Have you ever heard an advertisement that promises this kind of scheme? Chances are it’s a company using a multi-level marketing model, or MLM, to pitch their product. It sounds like complicated business lingo, but the multi-level marketing approach is pretty straightforward. The company relies on “distributors” (e.g. you) to not only sell their product, but also to recruit other people to become distributors as well. The more people you’ve recruited “below” you, the more money you make—assuming those recruits buy the company’s products.
Though multi-level marketing can theoretically be used to sell any type of product, most companies that use an MLM model today sell consumable health and personal care items like makeup and nutrition supplements. This approach provides a more sustainable business than sales of durable goods, because once a consumer starts using a type of makeup or a nutritional supplement, chances are they’ll continue to buy it if they feel that it’s helpful.
What’s not so easy to understand is whether the average person can actually make any money working as an MLM distributor. Usually, there are minimum monthly purchases you need to make to retain your status as an active member in the MLM’s network. This puts a steady drain on any potential earnings, and as a result, it can be hard to claw your way to a profit every month. Multi-level marketing companies often sell services to their distributors too, with the stated goal of helping them improve their sales abilities and extend their network of contacts. If you choose to buy these services as well, this cuts further into your profits.
This, combined with the vaguely pyramid-scheme-like design, has caught the attention of the government on numerous occasions. Congress and regulatory organizations like the FTC have sought to reign in the MLM industry. Here are a few multi-level marketing companies that found themselves the object of the government’s ire. [Read more…]