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How to Tell If an MLM Company Is Legit

A woman packs a box.

What do Avon, doTERRA, and Tupperware all have in common?

If you guessed that they’re all multilevel marketing or MLM companies, then you’re right!

If you’re toying with the idea of joining an MLM or you’re just interested in learning more about them then read on to have some of your most pressing MLM questions answered.

How MLM companies work

Multi-level marketing companies (MLMs) use a direct sales business model for selling different products and services. This means that instead of having a retail store with products on the shelves, MLM sellers sell directly from person-to-person. This can be achieved in a variety of ways, from online selling to door-to-door sales and through networking parties (think Tupperware parties).

Perhaps trying to distance themselves from the not-so-great reputation of multilevel marketing companies, they also refer to themselves as network marketing companies or direct sales companies. Someone who signs on can be called a consultant, a salesperson, or the MLM may use the term sales agents.

In the end, it doesn’t matter if it’s called an MLM, an MLM network, or anything else, they’re all based on the concepts below.

There are two main ways you can make money in an MLM:

Sales commission: You sell your MLM product or service to a customer and make a little commission.

Recruitment: You recruit new MLM members and make a commission off of the product or services that they sell. This is apparently where you make the “big bucks.”

The people that you recruit into your MLM are known as your “downline.” The person that recruited you, and the person that recruited them, and so on, are known as your “upline.” Just as you collect a commission when the people in your downline make a sale, the people in your upline get a cut of your commission when you make a sale.

If this is all starting to sound a bit like a pyramid scheme, it’s for a good reason. While the difference between an MLM and a pyramid scheme is that one is legal (MLM) and the other is illegal, they are otherwise quite similar.

Even if an MLM is not an illegal pyramid scheme, that hardly guarantees that it’s going to be a good investment. This is largely because 99% of people who participate in an MLM don’t make any money. Let’s just say the odds are not in your favor.

Recruitment and sales strategies that MLM companies use

If only 1% of people in MLMs are making any kind of profit you might be wondering why so many people are drawn into the MLM world … and there is a lot of interest. A survey by AARP found that 1 in every 13 U.S. adults have participated in at least one MLM.

This is because of the way MLMs are marketed and the people they target. MLMs like to go after parents (mainly moms) who are often desperate for more flexibility in their schedule or the ability to stay at home with their kids.

MLM distributors (sellers) make pie-in-the-sky claims about how you can earn massive amounts of money while only working part-time. Then they flood their social media with information about their MLM product and how amazing and life-changing it is and how fortunate you would be if you got to work with them … then they wait for you to take the bait.

When it comes to network marketing it’s all about quantity over quality. It’s about targeting a certain number of potential clients per day, every day. It’s about reaching out to every single person you have ever met on the planet and singing the praises of your MLM.

MLMs are not for me and that’s because the statistics don’t lie, but, to each their own. If you’re interested in MLM sales then make sure you do your homework before you get involved. Or, you can also check out direct sales job opportunities. While direct sales are similar to MLMs you make all of your money through sales, there’s no recruiting required.

Know your startup cost (what it will cost you to join) and really do your homework on the MLM network recruiting you. Understand its marketing pitch and be skeptical. The person recruiting you to an MLM business may be really good at selling the MLM program, but that does not mean you will be a success selling it (or that it’s not a scam).

Pros and cons of running an MLM business

What are the pros and cons of running an MLM business? Well, it depends on who you ask.

The pros….?

Anyone in an MLM is going to tell you that the pros include:

Low barrier to entry:  Minimal initial investment, no major training required.

Flexibility: You can work from home, work part-time, work while your kids sleep.

Earning potential: Not only can you make money by selling the product or service but you can also start to earn commissions off of your downline once you’ve recruited people and they start to make money. That’s passive income you make from customers you did not have to sell to.

Even some light drilling into those pros reveals that it’s a pretty flimsy case. Maybe it doesn’t cost a ton of money to get started BUT, your chances of making any money are slim to none (remember that 99% of people make NO money).

And yes, you do have a lot more flexibility when it comes to your time than if you were working a typical 9 to 5 however, but a 9 to 5 also means a regular paycheck. You could create a work schedule that fits perfectly into your daily routine … but you’re still working hard for a 1% chance you’ll make money.

The cons

The odds are not in your favor: I think I’ve drilled this one home but in case you missed it, there is a 99% chance that you won’t make any money. You might be better off spending your time looking for ways to make money online or finding a direct sales job that doesn’t require you to recruit other people.

It’s time-consuming: Even though an MLM is marketed as an opportunity that will give you more flexibility if you want to have ANY chance of making any money you are going to have to hustle. You can’t put in a few hours a week and expect to make any headway. Sorry.

Selling is hard: Have you ever tried to sell someone something that they didn’t really want? It’s not easy. This is essentially what you’re signing up for. It’s unlikely that everyone in your friend group is going to be hitting you up to make a purchase when they find out you’re selling Herbalife. Nope. MLMers are notorious for being super annoying because they are constantly trying to sell their friends, family members, and coworkers something that they might not need or want. Which brings me to the next con…

MLMs can strain your relationships: Have you been cornered by a friend or family member who’s trying to sell you an MLM product, or even worse, trying to recruit you? It’s terribly awkward. You don’t want to hear their sales pitch, and you don’t want to buy their products but you also don’t want to hurt their feelings. Ugh, even writing this makes me anxious.

Multilevel marketing companies generally make their salespeople or consultants a lot of promises about income and earnings. Be skeptical. Any MLM program may look legit but talk to people who gave it a try  (not the people you’re steered to talk to) and you may find that the actual picture isn’t so rosy. Fully understand the compensation plan — how you make money — before you even consider joining and do your homework on social media to root out a possible scam.

Top legitimate MLM companies

While you can probably tell that I’m not a big fan of MLM companies, many people are. If you’re still interested in joining an MLM, that’s cool, just make sure you do your homework.

The first thing you want to ensure is that the MLM you are looking to join is legal. Please don’t get sucked into an illegal pyramid scheme unknowingly.  You can visit the Direct Selling Association website where you can search to see if a company is legitimate or not. (The Federal Trade Commission also has some data).

There are hundreds of MLM companies out there to choose from. Some of the top legitimate MLM companies, according to the Business for Home site, which provides facts and stats on direct sellers and MLMs include:

4Life: immune system company

Beautycounter: beauty and skincare products

Herbalife:  dietary supplements

Mary Kay: beauty and skincare products

Young Living: essential oils and aromatherapy

Remember that just because an MLM is legit does not mean you will make money selling its products. You should also be wary about claims made for health and wellness items. The reality is that products like CBD oil come with a lot of unverified claims. Be wary of skin care claims in general — the products that actually work tend to not be sold via an MLM.

Know what you’re getting into 

The person trying to lure you into joining a multilevel marketing company with promises of passive income, residual income, and big bucks overall makes money by getting you to join. You then have to go find customers and begin recruiting people to join your MLM program. Success is not guaranteed. In fact, success is not all that likely and the fine line between a scam and legitimate multilevel marketing companies can be very narrow.

Think of it this way. How many friends have you seen selling products on social media while also recruiting people with promises of a low startup cost, marketing support, and tales of their own success? Fast forward a few months and those same people often simply stop talking about the MLM, direct selling, or whatever else once seemed like a good idea to them. Multilevel marketing can seem too good to be true because, in many cases, it is.

Hopefully, you now have a better understanding of what an MLM is, how it works, and why you should be leery before you decide to go all in. While the promises made by MLMs can be enticing, especially if you are a new parent and you want to stay home with your baby, make sure you know what you are getting yourself into. Research the company you’re interested in, talk to other MLM sellers (ones you can trust), and make sure you really believe in the product or service that you are going to sell.

–By Jessica Martel

SmartCents Mom