MLM Buyer beware, is this right for you?
24 questions to ask before joining
Right from the beginning, I want to be clear on a major point. This is not another "bashing" of MLMs, there are plenty of detractors doing just that already. There are a few genuine MLM companies that have enjoyed a consistent performance for up to 30 years or more. Their products are high quality, reasonably priced resulting in true retail sales figures year after year. Legitimate, ethical companies of long standing deserve to be protected from the rush to judgment and blanket indictment which we all too often ascribe to a particular business activity that may appear to be questionable. As a result of over 30 years investigating MLM activities, plus interviews with both successful operators and dropouts, the following questions are offered as a guide for a prospect.
All of us have, at some time in our past, made decisions that we later regretted, decisions that could have turned out much better if we had known just what questions to ask first. With regard to hitting on our friends, consider they are one of our greatest assets. Avoid becoming a member of the NFL (No Friends Left)
1. Is there a product actually being sold at retail to the general public?
To qualify for legitimate MLM status, State laws may require as much as 70% of total company retail sales be made to non-distributors.
2. Is there a head hunting fee?
A genuine MLM business is based on retail sales, and not just getting others to sign up.
These first two crucial questions are what State's Attorneys will look at in order to separate a legitimate MLM from an illegal pyramid scam. If you don't get the right answers to both of these, then proceed with extreme caution, perhaps look elsewhere.
3. Who are the owners and what is their track record?
A check with the BBB in the locality given as the MLM business address can give you valuable information. If there is no address readily accessible, proceed with extreme caution.
4. What is their actual experience with MLM?
There are factors unique to MLM that may not carry the same weight in other types of business. (Think prospecting and training.)
5. Do they have sufficient capital?
Many business owners fall short in calculating their start-up costs.
This is one of the most common failings in forming a secure business foundation
.
6. How much to join?
If more than a couple of hundred dollars they may want your money rather than your success. They may be boot-strapping their finances using OPM ("Other People's Money" including yours). Remember that if you pay by credit card they may keep your number on file thus opening up the possibility of more charges later which they conveniently didn't tell you up front. The prudent action is to get a single use credit card easily obtainable from major companies.
7. Is the plan clear and easy to explain?
If the presentation seems complex and hard to grasp, it may be a cover for questionable factors or the presenter lacks proper training. This can be a red flag for caution.
8. Who makes the product?
If it's the MLM company, then they can control the quality. If it's a foreign company located overseas then the quality may not be consistent, spelling trouble in a potential warranty action. You could be found liable and have to take back or pay up!
Does it consistently do all they say it will?
9. (a) Is there a solid money back guarantee?
Look for a realistic time period that allows you to give it a reasonable trial. (b)What about prompt refunds?
10. Are you required to maintain a minimum monthly sales level in order to keep your down-line?
Have a clear understanding of this!
11. Do you have to buy a minimum of product each month in order to keep your down-line?
Beware of these two factors, or you may end up with a garage full of unwanted stuff. These two questions 10 and 11 may not be clearly stated during the presentation.
12. (a) If you decide the plan is not for you, will they buy back your product and sales kit provided you have kept your stuff in new condition? Sometimes a company will set impossibly high standards for return conditions, in order to weasel out of taking back their stuff. (b) Is there a hidden "restocking" fee?
13. (a) Do they drop ship?
or do you have to physically heft all this stuff into your garage? (b) Is there a hidden fee for drop shipping?
14. Will there be a lot of people coming to your house,
especially after hours? Your Home Owner's Association could get complaints from your neighbors and they could shut you down. I recall one successful dealer who moved to an upscale area because he could afford it. His high level in the M.L.M. resulted in a lot of traffic to his house at all hours and the neighbors complained to the H.O.A. He was pressured into choosing between giving up the house or scaling back the business.
15. Is the price competitive?
MLM stuff may be overpriced compared to retail stores. Often times a big name company sees the potential in a new product and through economies of scale produce it at a lower cost. For example we spent over $400 for an air purifier through MLM, it worked okay, but six months later we bought a better performing name brand product for less than $50 at a major retail store.
16. Is the product so new that nobody knows about it?
Developing a market takes money plus specific skills. I knew someone around 1980 who tried selling water purifiers. Ahead of its time, the idea was a real hard sell. Today there are many such products on the market at considerably lower cost, due to a rising public awareness of health issues including the need for clean water. In the final analysis, if a product is really good, word of mouth advertising will travel at warp speed.
17. Does the company back you up with ethical and appropriate advertising?
Again, this an area that could open a door to potential litigation.
18. Is your sponsor personally qualified and interested?
in giving you the needed training and attention to properly develop your business? This may not be apparent until after you join.
19. Are there any territory restrictions?
or can you sell anywhere to anyone?
20. Are there any house accounts?
bypassing the down-line and dealing directly with the home office?
21. Can a wealthy prospect buy into a down-line at a high level?
or is everyone required to start at the same ground floor level?
22. Does the company tell you who they are right up front?
Have you been invited to attend an "Investment Opportunity" meeting? They may keep you guessing until the end of the plan presentation. I have seen this tactic backfire on experienced companies that should have known better. It often resulted in very hard feelings between presenter and the prospect who was soured on the whole idea of MLM.
23. What is the overall tone or atmosphere of the meeting place?
Is it relaxed and low key, giving you time to consider these questions or is it more like a circus? Some companies will hire skilled presenters trained in group psychology, able to whip up the meeting into a frenzy of excitement. I recall one event where people stood on the chairs, and waved $1000 checks in the air in order to join a new company pretty much unknown at that time.
They had just been seduced by master manipulators who knew exactly how to push every psychological button that could part people from their money.
24. Can they show you genuine testimonials from successful dealers? There is a whole new industry on the Internet that hires hack writers to write unsupported testimonials that may even include photos. Unethical? Illegal? You decide! With today's software it's possible to edit a lot of things that may be difficult to detect without enough time and resources especially if you're being pressured to sign up right away.
COMMENTARY
This study began in the mid 70's before the convenience and speed of the internet. However, the same guidelines apply not only to MLM but also to any business opportunity whether it's a franchise or a go it alone venture. With today's available outsourcing it's possible to reduce the workload involved in operating a successful MLM, but the choices you have to make usually require a level of business savvy not usually found in the typical new recruit. Consider that you will be revealing details about your business to possibly total strangers, something to think about.
There are a few solid MLM companies of long standing, and they all share one common aspect, namely, requiring you to work much harder than ever before by putting in a lot of time, much of it in the evening, because most of your prospects will be working at day jobs. Your family home life may come under considerable strain. I recall one former distributor, highly successful in reaching the very top in a well known MLM, who claimed 60,000 in his down-line. When his marriage broke up, the emotional toll resulted in neglect of his business and his down-line fell apart. MLM absolutely requires constant attention to offset the dropout rate and to be continually recruiting without let up. Internet research shows over 90 % drop out in the first 30 days.
A general observation shows that the early birds tend to get the worm, the ones that join later may find that their prospects have already signed up.
Recruiters for MLM seldom mention the enormous amount of time and effort expended by the few who make it big in MLM. You must continually recruit because of the high dropout rate. You eventually join the "NFL" (no friends left). Simple math also reveals limitations, for example if you get just two new recruits and they in turn get two, then with each down-line member duplicating this effort by only two, by level 40 with no dropouts along the way you would have more than the entire world population in your down-line, 10.99 billion in fact. Realistically, there are mathematical limits to the potential down line numbers regardless of any claims you hear.
Another false claim is "residual income" meaning that after you reach a certain level, it's easy street from there on, where you can retire to some paradise and play away all your cares. Not so, this point needs to be repeated again and again, MLM must receive consistent high-powered effort to sustain and grow sales levels.
Those who make it big in MLM are a rare breed, with above average energy, drive and ability to wear the many different hats needed to successfully start up and run a business. Inventory, tax records, bookkeeping, marketing, sales, recruiting, motivating and being able to learn from set-backs are all part of any business. More importantly, the "heavy hitters" will usually have an equal balance between task and relational temperaments in their make-up, something not found in everyday situations. There is such a thing as a "Moneymaking Temperament." which usually finds expression in a type "A" task oriented personality at work.
It basically comes down to a choice of either "sweat equity" or having enough financial capital to hire employees to perform all these activities. In today's Internet environment, the ability to outsource can offer a potential for reducing the workload. This requires careful, time-consuming research. After all, you are opening up details of your business to complete strangers. (Think identity theft, one every 3.5 seconds just in the U.S.A. alone)
UPDATE 6/6/08
The speed and convenience of the Internet has opened up many opportunities for making money by those who have turned to an activity resembling a kind of hybrid MLM. better known as Affiliate Marketing. You may join for free and get an override commission from various levels, but remember the cardinal rule: ALWAYS, check the credentials, experience and background of the principal operator. One aspect of Internet dealings is the ease with which it grants anonymity to entrepreneurs. You may not know anything about the person you're dealing with. It's even more important in the beginning to answer questions # 1 and # 2. Look for simple things such as, do they have a name, is there a physical address, or phone number, or any way to easily contact them? After all, in order to join you will likely be required to give personal information to a total stranger.
Yes, there are legitimate home-based businesses out there, just don't get caught up in a frenzy of manipulation by the thought of easy money. A little paranoia goes a long way.
My next post will look at paid surveys on-line. Like any other home work offer on this free-for-all goliath, there is both good, bad, and the ugly
