Is Multi-Level Marketing or MLM Business an Opportunity or a Pyramid Scheme?
Let's start by defining the Multi-level marketing or MLM. According to Forbes, the "Multi-level marketing is a type of business which uses a method of selling products or services directly to consumers, but using a system called multi-level independent representatives"
How does the system work? In order to respond to this question, let's refer to the history of Multi-level marketing. The multi-level marketing was born in the early 1960s by two men named Richard DeVos and Jay Van Andel who happened to be two Distributors of Nutralite. They left the company and created the biggest MLM company of all time "Amway". It started with the idea of the development of independent business owners to sell the company's products using their own system of Direct selling and recruiting. Their system was created for the independent members to buy their products to be resold to others, and in addition to recruit people to build their team. It was a kind of pyramid shape where the one at the top is called the sponsor or the upline and the bottom, downlines.
There are different type of MLM plans:
- The Binary MLM and the Uni-level MLM
- The Matrix MLM and the Board MLM Plan
- The Stairstep Breakaway MLM and the Monoline MLM Plan
- The Board MLM and the Generation MLM Plan
All of these plans have both advantages and inconveniences. Some MLM and marketing companies create a better plan that is combined with two or even three plans to make a unique plan that fits their company goals and objectives.
In real life, no matter the type of plan being used, the whole system relies on the ability of best performers to build their team. Also all plans are controlled by a sponsor at the top who leads his own team. Some of the plans have limits on the number of persons that can be recruited under you and the level of commissions you can make. For instance, the Matrix has limited commission to a certain depth, whereas the Binary Width is always limited to two legs.
All plans may have different characteristics, but they have the same objective to recruit the best experienced independent members. The purpose of these plans is to promote their brands and sell their products and services effectively. Another difference between the Uni-level and the Binary is their pay. The Uni-level plan pay goes to a specific depth, whereas the Binary pays till unlimited depth.
Do all MLM companies fall under a Pyramid scheme? According to the Federal Trade Commission (FTC) "a MLM company can be placed under the status of Real Independent Business only if it will pay based on sales to consumers. If the company relies on recruiting only, and members are forced to buy their products at a rate of more than 30 %, it is more likely to fall under the connotation of Pyramid schemes." In order for any MLM companies not to violate the 70% rules and to become legal in Canada and in the US market, consumers outside the company must be able to buy the majority of the company's products.
These days, there are many critics against MLM marketing which have impacted their credibility. But in reality, it works and it is proven to be effective for millions of business owners. As a result, some major companies have grown rapidly in size and revenue, among them:
- Amway, the largest multi level company in the US with a revenue of about $9 billion and has roughly 15.000 employees. This company had created opportunities for thousands of independent business owners and many were able to quit poverty and became multimillionaires.
- As of 2020, the global MLM industry sits on $189.6 Billion.
- The MLM industry employs 125.4 million people as independent representatives.
- The global toilet MLM is projected to expand at a CAGR rate of 8.3% through 2029.
The Multi-level marketing companies have helped millions of people to be independent and be successful. It also contributes to many home business owners, from financial to health and beauty products to grow their revenues and make a nice living.
Although many home business owners were unable to make it overtime, the MLM remains very viable, and can create an interesting source of income for you. If you can put in the necessary efforts to grow with the right company, you will make it to the top. But, before making a decision to join, do an extensive research that will probably help you avoid mistakes. Please do a bit of research on the company you are planning to join, study their plans carefully, then ask them some important questions. If it is the right company for you, they should be able to answer all of your queries in more detail. Also check on the company's commission pay structure, and their reputation.
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