Just imagine, a luxury mansion with panoramic views, vaulted ceilings, lavish furnishings, and an outdoor pool – your home – until you wake up with your face in the mud. That’s multi-level marketing (MLM). They prey on your dreams and naiveté, just waiting like a ticking time bomb until you catch onto the truth.
MLM holds a strong allure for wannabe entrepreneurs who fantasize about leaving the 9 to 5 and starting their own business. They buy into the dream of becoming their own boss and joining the ranks of the wealthy. The reality of multi-level marketing, however, is shockingly different than what they expected.
Unless you live in some remote part of the world without human contact or internet, chances are, you’ve met at least one person in an MLM business. This style of business has been around since the 1920s. And according to the Direct Selling Association, millions of Americans are involved in direct sales. With those numbers, you would think that people had discovered something worth getting into.
The facts, however, are fairly grim. A research and analysis of 400 MLM companies found that 50% of MLM representatives drop out in their first year. About 90% of representatives have dropped out by year 10. Those statistics contrast dramatically with those for traditional small businesses. After at least four years, 44% of small businesses survive. And in 10 years, only 64% of small businesses fail. So why do people join MLMs if they will be doomed?
They join because they have misconceptions about it. Today, I’m going to teach you how to look a little bit more critically at all the false ideas that MLMs tell you when you join one of their companies. If you’ve joined an MLM, or know someone who has, chances are, you’ve heard these lies before. Even if you have, it’s good to read about them again, to gain a new perspective on business.
I asked my Executive Director, Desmond, who did fairly well at some network marketing businesses, some affiliate marketing businesses, and some multi-level marketing businesses (MLMs) over the past twenty years, to tell us about his experiences about the five big lies of these types of businesses.
Watch this video about the big lies of multi-level marketing.
Lie 1: You’re An Entrepreneur Of A Small Business
It’s possible to succeed at network marketing. There are statistics that prove that you can. But it’s a very small number.
When Desmond started at the age of 18, a gentleman came to him and said, “Hey. Are you keeping your options open? You look like a sharp young guy.” He painted this picture that he could become an entrepreneur for a few hundred dollars. That was the first lie.
These network marketing companies make you feel like you can become an entrepreneur for nothing when the reality is entrepreneurship is very different than the picture they paint.
So what is a more realistic picture? MLM businesses cost as little as $100 to start. In comparison, microbusinesses (a small scale business with around five employees or less) cost about $3000 to start, and franchises between $2000 to $5000. There’s a huge difference.
Building a scalable business costs a lot of money. Hiring people costs money. Marketing costs money. Everything that you do costs a certain amount of resources when you’re an entrepreneur. Not only that, but when you’re investing thousands of dollars, you’ll take it more seriously.
It’s one of the reasons MLM businesses fail. If someone is investing just a couple hundred in a business, they don’t feel the need to do as much research into the probability of their success. For example, that person starts a health products business because it’s popular, not realizing that if they aren’t interested in the niche, they won’t do as well.
Their business will also fail if they’re desperate and have no money. Building a business takes time… up to ten years. This is true whether you want to succeed at an MLM or your own business. It’s not a job.
It’s not a matter of waiting till the end of the month to get a paycheck. A business requires a tremendous amount of effort, attention, and skills. If you don’t put in the work, you won’t get paid.
But, when MLMs tell you that you can avoid all those business start-up costs by joining an MLM, that’s a lie.
The truth is you can become a top earning entrepreneur without being in business on your own and without a lot of money if you have a high-income skill. You’re trading your time, hours for high dollars. That’s what I teach my mentees.
If you want to make some money on the side, don’t start a business. Develop a high income skill that you can offer to the marketplace in exchange for money. Desmond failed at two major businesses, half a million in one, half a million in the other. He didn’t have cash flow. He didn’t have income coming in. They took other people’s money and blew it before they learned how to make money.
Entrepreneurs create things like jobs. With network marketing or MLM companies, you’re not creating jobs. You’re a distributor, you’re a consumer, but you’re not an entrepreneur. They call you a small business, but you’re not. That’s one of the lies.
Only if you’re the CEO, the founder of the MLM, then you’re an entrepreneur.
Lie 2: MLM Is A Part-time Business
They make it sound very easy. They say you can do your MLM business on the side by putting in just a few hours every week. However, if you want to get to the top levels, or even make enough to replace your job, you need to be full time. Seven days a week. On top of your regular job.
When Desmond was in an MLM, he would leave the house at 6 a.m. Work a whole day. Come home exhausted and jump into a suit. Then he would drive somewhere to a meeting place, spend money on a coffee, and chat with a prospect. Sometimes he would stay late after the meeting, til two o’clock in the morning. It was time away from his family.
That’s how Desmond prospected and met with people. When I was doing MLM a long time ago, I actually went to a bookstore and hung out in the personal development business section. I would slowly get close to people and say, “Yeah, that’s a very good book, right?” I would try to strike up a conversation by asking them, “Oh, by the way, are you looking for an opportunity to make a side income?”
It felt so draining to prospect. After I talked about whatever the network marketing opportunity was, I felt like taking a shower. I felt so dirty and disrespected like a cheesy salesman. Maybe even worse than that.
The proof of how people feel about MLM or network marketing is very simple. If you go to any function, such as a wedding or business networking session, and someone asks you, “What do you do?” Just say, “I’m a multi-level marketer.” See how people react to you.
If you want to avoid people at a social function, saying those words is also effective.
Actually here’s a funny true story. I was with my team at a big conference. They give you these tags with stickers below it to identify your occupation, like copywriter, marketer, or agency owner.
I wanted to be at the event and study, not get mobbed by people. So on my tag, I put “MLM.” No one talked to me. It’s like I had some kind of disease. MLM had that kind of identity.
Forget about building an MLM business part-time. It doesn’t work. Now, if you just want to make a couple hundred bucks a month, you can do it part-time. If you want to make thousands, forget it. (See Lie #6) If you want to make serious money, you need to treat it like a career.
Lie 3: Their Products Are Cheaper
Their products are always more expensive. They say it’s cheaper because they are whole selling, versus paying the distributor and all that if your product is in the store. It sounds logical, but it’s not the whole picture. Someone is still getting paid.
They mark the prices up because they need the profit margin in order to pay all the distributors on all these levels of the upline. They make it sound as if the premium prices are for better quality products that are scientifically and clinically proven.
Some of these products are good. I’ve subscribed to a couple companies. I do like their product. I’ve done my research. But most of the time, a number of companies with a huge line of thousands of products which they claim to be much higher quality, is B.S.
It’s all private label garbage. Someone else made the product, put on their logo, and then they let you distribute. That’s how it works. Think about it logically.
If they’re spending so much money paying everybody, how much money could they be spending on improving the quality of the product? The distributors have to try to convince other people why the products are more expensive.
Some distributors make crazy promises, like curing cancer because they get greedy and want to make more money. It’s just wrong. If you sell vitamins, that’s fine. You can say you give customers more energy. But the FTC can shut a company down for making crazy claims.
And what happens to your income when you’re shut down? It’s gone. It happened to Desmond.
Lie 4: Anyone Can Do Multi-Level Marketing
The fourth lie is they make it sound like anyone can do it. The truth is, people who are driven and outgoing will find success more quickly than introverted people. Desmond has a fairly outgoing personality. He’s talkative and likes to socialize. It’s natural for him to network. But when I was growing up, I was shy and didn’t have a big network of friends.
So to do well in MLM, you need to be social. Having a wide social network helps. Many of these social butterflies often have MLM parties. Usually the hostess of the party is a female MLM distributor inviting friends or even random acquaintances to her home for a themed party, like a barbecue or pool party.
Most times, the guests aren’t even aware they’re going to be pitched until the party has started. They’re having some food and then they find themselves at a product presentation. And if you don’t have a wide social network, if you aren’t comfortable telling people what business you are doing, you won’t be very successful.
In order to climb to that top leadership position in network marketing, the statistics are that 3 people out of 1,000 actually make it. Desmond was probably one of those three.
Now making it doesn’t mean you’re rich when you’re in a leadership position. It just means you’re not losing money. You’re able to pay the bills. On average, network marketers make $2500 a year.
It takes a lot of skills and time to build an MLM business. When they say anyone can make it, yes, maybe after 20 years, you can. But if you’re shy or don’t speak good English, and you’re talking to your prospect in English, then it takes time.
Most of us want to earn money quickly to get out of our job. We want to spend time with our kids when they’re young, not when they’re 30 years old.
That’s the lie. They make you feel that anyone can do it, but the reality is, it takes time to learn the skills that get you to that high level. If you want to create wealth and abundance in your life, you can never be out of the equation. If you don’t have the skills you need to be successful, you’re not part of the equation.
Anything that is kind of shady, and anything that promises you that money will fall in your lap if you push a button, it’s a scam.
You can’t just put money in and get results without any effort. You’re being scammed.
If you know how to create wealth, you always, always, have to be part of the equation. If you deliver real value to the marketplace, in exchange for money, that’s legitimate. That makes you a real entrepreneur.
Lie 5: You Can Make Good Money
Statistics have proven that most people don’t make enough money in MLM to be able to quit their day job.
On average, distributors spend over $25,000 and earn $2500 a year. This number includes the conferences, the sign up kit, buying a suit if you don’t have one, driving to places, the products, the marketing, and the telephone bill. This doesn’t include the price of spending time away from your family.
Think about it. You spend $25,000 and make $2500. How is that a good investment? You’re better off if you just stay home and do nothing. Then you would have made nothing and spent nothing. At least you’re breaking even.
In his study of 400 MLM companies, Jon Taylor found that 99.71% of participants lost money in MLM. Here’s another statistic. Amway, considered one of the grandfathers of MLM, makes around 9 billion a year and has been around for 60 years and counting. But 48% of its distributors, or representatives, make an average of $200 dollars a month.
That’s why the attrition rate is so high. That’s why they have to keep recruiting people. People learn about the lies and they leave. The upline has to babysit a whole bunch of new recruits who are not motivated and have the wrong expectations. It’s just frustrating.
I joined an MLM and I quit because I don’t believe in the model.
I always teach people to build a business in these two steps: first, have that high income skill, then scale your business.
Those are the five biggest lies of multi-level marketing. If you’re still thinking about joining network marketing or an MLM, don’t.
Have you been taken in by a MLM lie? Comment below.