Most of the network marketing or Multi-level marketing (MLM) companies claims to offer an exceptional income opportunity, much higher than the other businesses. This is a greatest argument in defense of running those pyramid schemes run by MLM companies.
I don’t say that all the network marketing companies are Scam but legitimacy of any business can be determined by truthfulness (or falsehood) of its income claims besides the usefulness of its products to the end user or customer.
The report of a recent survey revealed that 99% of all MLM representatives earned less than $14 per week in commission. This figure is before deducting the business expenses and sales taxes. Therefore, the take-home money is much lesser.
If report is to be believed, then most of the MLM representatives are suffering huge losses and that’s the reason why 99% of the people stop promoting MLM within three months of buying that expensive starter Kit.
Most of the Network marketing companies do not reveal the real data on average actual income.
Unfortunately, you might have been misinformed and misled by the false promises of MLM industry by some of your own friend, colleague or relative.
I don’t blame the for all these as they themselves have been cheated and still believe in the raw data presented to them.
Wherever you look, people are assuring the dramatic and life changing results in your income and you might have already been lured by these claims.
Let me ask you a straight forward question if you have already joined ant MLM. What’s you level of success in Network Marketing? Are you one of the success stories or a failure?
If you have still not joined, you can put similar question to the person who approach you for making a member. Don’t just rely on words, ask for their income proof.
In this article I am going to Expose 5 myths of Network marketing that people will try to share with you in order to recruit you and these same people would not have made a single dollar profit (not income) from MLM.
At the end of this article I will share my own experience with Network marketing but let’s first discuss how MLM myths are maintained and what are 5 Myths of Network Marketing.
How MLM companies confuse customers ?
The consumers literally cannot verify the income data presented to them. They are bombarded with some testimonials and success stories of the top leaders.
Most of the Multi-Level marketing companies use vague language to explain their compensation plans. They do not reveal that their business model is not based on the recruitment of new down-line but the purchases made by them.
Once you have been recruited in the endless chain, you will have to spend some minimum amount monthly to achieve your discount levels and this minimum amount is much higher than the profits you are making. You are forced to buy some unusual products that you can other =wise live happily without them.
The MLM companies refer their business Model with the misleading terms as Direct or One to one marketing. They avoid telling you that their business in fact is a Pyramid Scheme.
Almost every company would describe their pay plan as unique and more beneficial than other competitors. They use the terms like legs, binary, PV and BV, yet these schemes are almost identical and yield same kind of income results to the average marketer.
MRP or retailed prices are applied go the Goods that are never retailed.
Discounts on the Products are classified as income and distribute markup are used to classify gross profits.
A complex hierarchy of the organization is presented using circles and diagrams which is beyond the understating on average participant.
Fancy designations like Silver, Gold, Platinum, Diamond and Blue Diamond are used in organizational hierarchy to attract uninformed participants.
The qualification to earn rebates solely depend on the personal Purchase volume whereas ranking can be achieved through the business Volume of Down-line.
Income data presented by some MLM companies mixes the income data of MLM companies such as Avon and Tupperware involved in traditional selling.
The normal business cost like telephone bills, travel, training cost and shipping and postage are normally omitted from estimation. Therefore, they try to confuse the average participant between “gross income” and “Net profit”
Inventory Purchases are not considered as business cost and they are treated as purchases for personal use
Most of the companies use the “average income” to confuse the participants without actually informing them that 95% of this income is generated by the People at top two levels.
Another misleading data is sharing the count of active distributors in one-year time frame without revealing that fact that most of these are either top level distributors who are making profit year or the people who have recently joined and have not made a single penny.
MLM companies conceal the numbers. They would not reveal that how many people join and quit the program each year.
To cut short, these MLM companies would never disclose the actual financial information needed to make an informed decision.
5 Network Marketing Myths :
Here are 5 major myths of network Marketing :
Myth 1 – Power of Duplication:
All the MLM companies model their business on recruitment and duplication. Newbies are easily lured into this business model by some simple presentations. None of them goes into the real mathematics behind the scene.
Today I will try to explain why this duplication never work and why 99% participants will never make any profit whichever MLM they might have enrolled into.
Let me illustrate it with a simple example and plain multiplication.
Pyramid Scheme Failure – Simple Illustration:
If you have attended some MLM seminar, you would really be impressed with the terms like “Power of Networking” or team work.
I have seen many advertisements from MLM recruiter suggesting that MLM schemes use the Power of Networking to make money which otherwise is very difficult in regular 9-5 jobs. Any newbie can easily be convinced.
Let’s minutely examine the truth behind these calculations. Let me take an example of an MLM up to 7- Level chain in which each person recruits just 4 new members
Level 1 = 1
Level 2 – 1X4 = 4
Level 3 – 4X4 = 16
Level 4 - 16X4 = 64
Level 5 - 64 X 4 = 256
Level 6 - 256 X 4 = 1024
Level 7 - 1024 X4 = 4096
As per the thumb rule, anyone can start making profit if the chain under him is completed up to three levels. It means Person at the top level would start making profit when 84 (4+16 + 64) down-line have been recruited.
By applying same formula, a person at Level 5 will be making profit when the chain up to 8th level is completed and minimum of 21504 (1024+4096+16384) or 256 X84 people have been recruited.
If due to some reason this chain gets broken at level 7, a person presently at level 5 will never make any profit.
Basic formula will hold irrespective of how much chain extends. In this chain on People up to level 4 i.e. 64 people out of 5461 will make some profit. The total number of people making profit turn out to be 1.17%.
Since all the members may not be able to recruit 100% down-line, the real number would come down to less than 1 %. And that’s why 99% of people who join an MLM scheme do not make any profit.
Can you imagine a person Joining at 15th or 16th Level would ever be able to make any profit? All the profit would be made at top few level only.
Theoretically Every person who can recruit 4 people under him have an opportunity to make money but practically it is impossible.
In nutshell, the income opportunity will ultimately depend on the purchases by down line or direct sale generated by you. Power of duplication will not work after top few levels. It is just a myth.
Duplication rather lead to intense competition in this case.
Just think about it. In all probability you will recruit people from your inner-social circle as taught by MLM gurus. Does recruiting from own circle would offset the benefits you might have got by selling some products.
Some gurus will teach you to recruit the best customer. Think again. By recruiting your best customer , are you not losing the recurring monthly commission which you would have made just by selling the products
Recruitment will be benefited when there are infinite number of people under you and that's not going to happen. By recruiting closely associated people, you are creating tough competition as every near and dear would be selling the same products to same group of people.
Myth 2 - MLM is a Source of Passive income
One of the major attraction of MLM is to generate passive income. When you recruit enough people under you and when they follow the same process , you will probably make lots of passive income without doing anything else.
However, this is a myth.
Let’s assume that MLM is not a pyramid scheme and rely on direct selling. If that’s the case you will have to keep on selling the products door-to-door basis for making some money and that will never be considered as passive income.
On the other hand, let’s assume that you will make money by recruiting people and let them sell the products and recruit more people.
If everybody would let other people sell the products and just recruit the people, where the money would come from?
Is passive income really viable in network marketing? The question is difficult to answer.
It will depend upon the number of factors. Let me try to illustrate with a simple example.
Let’s assume you have joined an MLM organization which pays a commission of 10% on direct selling. Let’s assume you could sell $5000 worth products in first month and have generated a profit of $500.
Now assume next month, you have recruited your best customers under you and if you don’t recruit someone else will.
Now what will happen, your sale may drastically be down to say $1000 and you make $100 as direct commission and earn say 2% on the items purchased by your down-line, that will be another $80. SO with the same set of customers you will now be making $180 per month instead of $500 made by you in first month.
Finding new customer will not be easy as you have already created competition in your social circle.
You will have to put lot more efforts to sell the products and recruit more people. That’s not the way t earn passive income.
Making money while you are sleeping will still be dream that can never be fulfilled with MLM.
Myth 3 - High Profitability as Products coming direct from Company
Any business can be successful if it makes sufficient profit. I am here talking about the net profit and not the gross income.
On the contrary, the MLM products are not just unbranded but also overpriced . The commissions offered do not have sufficient margins to cover various expenses like telephone bills, travel expenses, money spend in buying flyers & training material, distributing free samples, cost of conducting seminars and meetings.
When people can get better products from reputed brands at very less price, it become difficult to sell them these MLM products continuously. Your friends may oblige you once or twice but they won't buy these products regularly unless they join the company themself for making money.
Most of the network marketers fail to break even and suffer loses. The income they generate mostly be spent on the expenses and net profit is actually very low, if any, what otherwise appears to be high profit margin.
Myth 4 - Low start up cost
You might have been approached by some of your friend advising you to join some new MLM business with very low or investment.
You may not be spending huge money in buying a starter kit or training material but you are actually spending your social capital by emotionally exploiting your family members and friends. I have seen that even close friends start avoiding their friends when they start overselling. You may not like to lose your real friends for few dollars.
Moreover when you actually consider the recurring investment to be made on buying those products on monthly basis to keep your PV within limits, you will be spending more than what you have thought.
If you keep on buying without being able to sell them, you will suffer huge loses as all the products may not be consumed by you before their expiry dates.
Myth 5 - MLM is not a Pyramid scheme
Product base MLM like Amway, Herbalife , and Source Naturals may not be considered as pyramid though Amway was initially charged by FTC to be a pyramid scheme. Its lawyer fought and ultimate reached some agreement by forming Amway rules.
But most of MLM are still considered to be Pyramid schemes modeled on just hiring the people and enforce people to buy the products regularly on monthly basis to keep their membership intact.
Myths of Network Marketing - Conclusion
I have mentioned here the 5 major myths of network marketing and there may be more.
Network marketing can not be considered as the best option to make money. 99% of the people who join the MLM organization are bound to suffer loses as I discussed above.
If you can join some good organization just launching their MLM scheme and be in first two levels, , you may probably make lot of money.
Otherwise I would advise you to stay away from Network marketing business and search for some other legitimate option for making passive income.
Are There Any Alternatives Available:
Yes there are few other legitimate opportunities are available for making regular stream of passive income. Affiliate marketing and Dropshipping are two such ways. I am making 6 figure income for last many years using both opportunities effectively. Though Affiliate marketing is my Prime activity.
Affiliate marketing is an art and you need a step by step training to get started. Though you may fine lot of material on YouTube or other social media but that will not lead you any where.
I joined wealthy Affiliate affiliate training program and found it to be the best in market. It has worked for me and I am operating many websites for making passive income. You don't need any technical skills and they will teach you every thing. You will create your first money making website in first week itself following the free modules.
In case you are interested, you can join as a starter member for free by clicking the link below and check if it works for you as well.