INCOME FROM NETWORK MARKETING (MULTI-LEVEL MARKETING, aka MLM)
The Good, the Bad, and the Ponzi
Let's takethem in reverse order. What is a PONZI scheme? (Does the name Bernie Madoff ring a bell?)
A Ponzi scheme is where someone (a money manager or investment broker) takes your money, ostensibly to invest it, but instead uses your money to pay phony dividends to the people who "invested" earlier than you. It relies on the "money manager's" ability to keep recruiting new investors indefinitely in order to pay dividends to the earlier investors.
Why legitimate Network Marketing is not a Ponzi scheme.
Network Marketing companies employ independent contractors, or agents, to sell products and services directly to end users (customers), for which they are compensated by a sales commission. Additionally, the independent contractors generally are encouraged (remunerated) to recruit other agents to also sell these products and services. The new agents, in turn, can recruit agents under their supervision, thus building a pyramid organization. A portion of the commissions of the new recruits are distributed upward through the organization, presumably to compensate the recruiters for training the new agents.
A legitimate Network Marketing company should enable independent contractors to earn serious commissions without recruiting new agents under them, if they so desire. Also, there must be a product or service offered for sale. Entrance costs should be low, and there should be little or no requirement for inventory purchasing. Of course, any legitimate MLM should permit you to quality for home-business tax status, with the accompanying tax write-offs.
I don't recommend joining the Health Foods/Supplements MLMs. This is a relatively small market and overcrowded at that. Because this is an "over-harvested" marketplace, the leaders have to keep inventing new "health foods" to keep up interest. Acai berries MLM (who ever heard of this one a year ago?) are the latest "discovery."
The exception to the rule (there always is one) is the new frenzy over expensive dark chocolate. A May 10, 2009 New York Times article by Michael Wilson, tells of an Upper West Side Manhattan phenomenon, Xocai. Distributors must buy inventory of a variety of chocolate products. A combination of clever marketing and well known health benefits of dark chocolate are making this a successful MLM business--for now, anyway.
A relatively new MLM that I've heard good things about is The Pampered Chef. It meets our Guidelines for Joining an MLM (see below) and it should appeal to all the amateur chefs out there. The company features high-end cookware, bakeware, stoneware, and any other possible cooking "wares" you can think of. Marketers hold "cooking shows" to demonstrate the products and to sign up anyone interested enough to become distributors and hold their own house parties. These are all quality goods (we've bought some ourselves) and the company has a good reputation. For info, go to their website, www.pamperedchef.com.
At the risk of violating my own principles of MLM, I have to tell you about a recent conversation I had with an Amway representative. Sure, this company has been around for a millennium and most of the fertile ground was worked long ago. But hear me out.
Last May, at our community's annual Spring Block Party, a neighbor introduced me to her seventy-nine-year-old friend. This woman was obviously high on life. She belonged to several social clubs and led an active life. We chatted for a while, and then got around to discussing business. She excitedly related how she had just recently been introduced to Amway by an acquaintance who sold her some beauty creams. This friend kept after her to start selling products herself. Reluctantly, she finally agreed to hold a house party. She invited five of her best friends. They all bought something. Today, three months later, she now has forty-two regular customers.
Here's why it worked for her. She had found a niche. Her friends were all ladies in their seventies, and early eighties. Apparently, some of Amway's cosmetics are pitched to this age group and the products find an enthusiastic market. I don't know what the Amway commission is on sales, but this lady is enjoying a commission on about $2,000 per month of sales--with very little effort.
Here are my Guidelines for Joining an MLM
1. Get in early, if you can. Look for a new MLM company in a desirable market 2. Check out the market size -- the bigger the market, the more room there is for a newcomer 3. Joining fee should be low -- less than $500 4. Monthly fee should be low -- less than $50 5. You should not have to maintain inventory 6. Make sure you have an actual product to sell 7. The MLM company should offer training to advance your position 8. The MLM company should offer group rates on health and life insurance. This is especially valuable if you are retired or out of work. Group rates are much more affordable than individual rates. 9. Your financial incentive should not be tied to your having to recruit people under you in order to make serious money 10. Keep demographics in mind. Anything pitched to a growing segment of the population is good. Think Baby Boomers, or Hispanics
Two references on MLM:
The Next Millionaires, by Paul Zane Pilzer, and
Why We Want You To Be Rich, by Donald Trump and Robert T. Kiyosaki