Should you try multilevel marketing?

This post comes from Stacy Johnson at partner site Money Talks News.

Ever consider trying to make some extra money -- or even a living -- working with Amway, Herbalife, or some other network marketing company? If so, you're not alone. Here's an email I got last week:

I've recently seen a "renewal" of direct selling -- specifically Amway and its products. What intrigues me is that this isn't the "same Amway" that I was approached about 20 years ago -- it's online shopping, shipping directly to the consumer. While the organization appears to function the same, I'm wondering if this new method of product delivery would lend to a more successful business?

I looked on your site but only found one article about this, and it only suggested that you fully research before joining.

Can you recommend specific things that people should be looking for, or asking (and what answers denote good vs. bad opportunities) when considering "joining" something like this? Any other advice or reality checks that people should give thought to before jumping on the MLM, direct-sell or IBO (Independent Business Owners) bandwagon?

If you've never heard of multilevel marketing, you can read about it at this Wikipedia page. Here's how they define the concept:

Multilevel marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation. Other terms for MLM include pyramid selling, network marketing, and referral marketing.

In short, the ultimate goal of network marketing isn't to sell products. It's to recruit enough people for your downline so you'll make a living from their efforts rather than your own.

I've been solicited for various multilevel marketing programs many times over the years. In fact, just last month an acquaintance of mine tried to get me to attend a meeting for Lyoness, a network marketing company offering a cash-back shopping card. Since I could theoretically use TV and the Web to reach and recruit hundreds of thousands of people -- and he'd be making money from all of them -- I guess he figured I'd be the perfect person to have in his downline.

But I've never considered joining any network marketing company and never will. That doesn't mean you shouldn't -- do whatever makes you happy. But tread cautiously, because there's a lot of hype and broken promises in these businesses. I'm not going to speak to Amway or any other specific company, but here are some general things to consider. 

If you've never tried sales, let me assure you it's not easy. You have to reach people, then convince them they need what you're offering. You'll be regarded skeptically, because some on the receiving end of your pitch will think you're trying to enrich yourself at their expense.

So if you're going to sell something, make sure you can take rejection. But most important, make sure what you're selling really has value. Because unless you're a sociopath, you'll never be successful selling something that doesn't. Post continues below.

Are you willing to approach your friends? While network marketing doesn't require you sell to friends and acquaintances, it's often done that way. This is the chief reason I'll never do it. In my opinion, attempting to sell anything to your friends is sleazy, plain and simple.

Back in my stockbroker days, I became friends with one of my co-workers who wasn't a good enough salesman to make it. Months after he left the firm, he called and invited me to lunch. Looking forward to catching up, I agreed to meet him at a local Denny's. But as soon as pleasantries were exchanged and lunch ordered, he launched into a spiel for Amway. It continued uninterrupted until I slammed my car door. I never saw or spoke to him again.

If you're looking to reduce your list of friends, treat them like marks. Try to convince them they should become a salesman who works for you.

I once attended a big multilevel marketing meeting at the behest of one of my stock brokerage clients. It was more like a tent revival than a business meeting, with person after person taking the stage to wild applause after waving around the giant checks they were receiving monthly, courtesy of their downline.

The next day, the visiting head of the organization called me at my office to try to get me involved. The pitch: Because he had directly and indirectly enrolled so many people in his downline, he was now getting $100,000 monthly checks with no effort. Didn't I want to make that kind of money? 

I replied by asking him exactly how many people he needed in his downline to make that much. When he told me, I whipped out my calculator. The details are sketchy -- it was a long time ago -- but as I recall, in order for all the people in this guy's downline to make the same money he was making, they would have had to enroll more people than there were in the state. And if those new recruits used the same $100,000 promise when they signed up their recruits, they'd be required to enroll more people than there were in the United States. And if the next layer down wanted to make $100,000 a month, they'd have to sign up more people than there were on the planet. 

Network sales often involves those at the top of the pyramid convincing the newcomers at the bottom they can make the same money they do, something that's highly unlikely.

There are a lot of passionate believers in network marketing and, as a result, I expect a lot of negative comments to this article. So let me reiterate: I'm just listing reasons I personally don't like this method of selling, and suggesting you invest thought and research before you invest time and money. Recruiting meetings are pumped with emotion and it's easy to get swept up. Use your head, not your heart.

At the end of the day, network marketing is just another way to distribute products and services. It's sales. There are tons of companies doing it, and there are no doubt tons of people who have had positive experiences with it. But because this road is littered with hype and broken promises, tread carefully. Start by checking out this index of Entrepreneur Magazine's network marketing articles.

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