MLM Ethics

Posted on 08. Dec, 2007 by in Non-Profit ethics

Dr Robin Rushlo asked:

Are MLM/Network Marketing Businesses A

Honest Way to Earn Income?

The MLM/Network Marketing Business

MLM (Multi-Level Marketing) is based on the concept of distributing the process of selling onto independent businesspersons. Honest MLMs give everyone (and anyone) the opportunity to start and grow their own business. Consider that the MLM concept can be applied to selling every good and/or service, and that every person is a potential future representative. One can say that everything has the potential to become a MLM opportunity.

Think about where you work. Isn’t it true that the boss (or company) is raking in the big bucks out of the money YOU are making for the company? Maybe you aren’t in sales. You still contribute something of value to the company. If you didn’t, they wouldn’t pay you! Your paycheck is a reflection of that value. Whether you work in sales, for a nonprofit, or in the service industry, somebody somewhere is making money and you are contributing to that effort. If they weren’t making money, the company would collapse.

There are many good examples of traditional businesses that function very much like a MLM. Examples include the Insurance business, the Yellow pages guys, your local Auto Dealers, etc. Look at a sales force. The salesman makes a commission of 12%. That’s all he makes unless he makes his quota or sale goals and then he may get a bonus. The sales managers for these companies may have 10 salespeople to train, keep track of, and motivate. As reward for this extra work, he makes 3% of everything that each salesman makes plus commissions and bonuses for his own effort. He may make an additional bonus for all of his salesmen making their sale goals. And the owner of the company makes money on everyone!

Gee, that would mean Honest MLM is everywhere we just do not see it like a MLM company.

An Honest MLM versus a Pyramid Scheme?

Pyramid schemes are illegal scams involve a large number of people at the bottom of the pyramid, all of them paying money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from cash paid by others who join down the line. You receive no products or services for your participation. Pyramids resemble a legal honest MLM in structure, but there is an important difference. Pyramid schemes seek to make money from you, while multi-level marketing seeks to make money with you by offering top quality products and/or services. Pyramid schemes are much like chain letters; they require mathematical gymnastics that cannot possibly work. Pyramids always collapse in the end, and only a very few (usually the con artists themselves) make any money on them at all.

Many people associate the MLM technique with pyramidal schemes. An MLM does not work this way. You must do work to earn money—it is as simple as that. The main objective of an MLM is to enlarge the area of distribution for different goods by involving as many people as possible, either as customers or as possible representatives. Each company representative earns their money through honest work. They may receive commissions for selling and may also receive a bonus for offering the business opportunity to others.

Anyone who works a conventional job is in a pyramid scheme. Every company, army, and government in the world is built on the pyramid concept. However, with multilevel marketing, you aren’t held back by the people above you like you are in a conventional job.

With an MLM, you can build your business as large and as profitable as you want and you do not need to be at the top. In fact, with many MLMs, you can surpass the earnings of the person that introduced you to the business.

How Can You Tell if an MLM is a Good and Honest Company?

MLM opportunities are all around us, but only a few of them are turned into profitable businesses. Be sure to make the most out of every honest MLM opportunity.

The Direct Selling Education Foundation suggests that, before you sign up with a company, you ask yourself these three questions:

1) How much am I required to pay to become a distributor? An honest MLM company will generally charge a small start- up fee. Pyramid schemes make most of their money from signing up new distributors, so their start-up charges are often very high. These start-up fees may be called many things and you may be told they are required or are recommended purchases for training, computer services and product inventory.

2) Will the company buy back unsold inventory? Honest companies will usually buy back any products that you fail to sell. Bogus companies will stick you with the inventory.

3) Are the company’s products sold to customers? Pyramid schemes gain nothing by actually selling a product and often don’t sell anything at all. They focus only on gaining new investors. Be wary if you must start by buying a large amount of product. Also, take a good look at the product itself. Multi-level marketing depends on quality products that are well-priced; pyramid schemes do not.

As with any other investment, before you commit ask questions about the company, its leadership, its ethics and its earnings. Take your time and investigate any information you’re given. Talk to other people who have joined and research the company. Don’t act hastily!

Ethics of the MLM

Many people question the ethics of MLM. They claim that the people on the top get all the benefit from the people working below them, while the people below don’t get much if anything at all. Nothing could be further from the truth! The main income for an honest MLM comes from selling goods or services. With an honest MLM, you can easily make more than the person that brought you into the company if you put the effort into it. He gets a little bit from your sales, but you get the lion’s share. Work equals money!

An honest MLM also focuses both on sales and on recruiting people (increasing the distribution system) to earn you more money. When a MLM representative contacts a person, he views that person as a potential customer and as a potential future representative. A representative will give you the opportunity to purchase his merchandise (which you were going to buy anyway) and to become a representative yourself, giving you the chance to earn money, grow your own business, become part of the company and share in the profits!

The recruited person benefits since he is now part of the company and is also the owner of his own business. Some benefits of joining the honest MLM can include products at a reduced cost and the opportunity to build their own business by selling and recruiting themselves. However, recruiting alone is not enough. You must recruit, motivate, train and supply the persons you recruited to get your share of their sales profit.

I Don’t Know How to Sell or Recruit!

If you do not know how, don’t panic! There are many honest MLM guides online. All the tips, tricks and the knowledge you need to start and grow a MLM company are available. The good news is that a lot of these are free.

Expand your business over the Internet. It is easier and cheaper. People are much more comfortable buying things from perfect strangers over the Internet, rather than buying them from total stranger at their doorstep. Save time and avoid stress by doing all your managerial tasks from your computer. Recruiting can also be performed online. As can selling.

The Future of Multi-Level Marketing

The home-based business boom, also know as MLM or Network Marketing, isn’t really booming at all. Now it’s true that in the last decade the number of MLM companies popping up all over the United State
s have grown by over 500%. Yet, the number of distributors has only grown by 15%! So, yes there is a “MLM Boom”, but it’s the number of companies that have boomed, not the number of distributors.

What does that mean? It means that there are too many companies competing for the same distributor base, plain and simple. Ever seen a small town “boom” really quickly only to go “bust” in a few years? You know the type I’m talking about. You drive through the town and see closed businesses and shopping malls all through the town and you ask yourself “what happened here?” Now, I’m not saying that the MLM industry is ever going to “bust”.

Quite the contrary, the MLM industry will continue to grow with or without you—it’s that strong of a business model. But, it’s not 1977 anymore where Amway, Shaklee and Herbalife are not the only games in town. Instead, there are literally thousands of “good” MLM programs to choose from. To grow a profitable MLM company needs work and dedication, but once you have it rolling, you will enjoy the benefits. Grab a MLM opportunity and make your first step towards your honest MLM Empire.

The Legal Aspects of Honest MLM

The Inevitable Question

OK, you have either been recruited for a network marketing opportunity or you are the one doing the recruiting. Inevitably, this question will come up: Is this a pyramid scheme or a legitimate business opportunity?

This Tuna’s for Selling

Although this is a complex legal area, a simple story draws a clear line in the sand. Party No. 1 sells Party No. 2 a case of cans of tuna fish for $10. Party No. 2 sells the same case to No. 3 for $20 and so on until No. 9 sells the case to No. 10 for $500. No. 10 opens the case and opens one of the cans, which turns out to be rancid. He goes back to No. 9 who refers him to No. 8 and so on until No. 10 goes to No. 1 to complain.

“I have major problem,” he says.

“So, what’s your problem?” says No. 1.

“Well,” says No. 10, “the tuna is rancid, it’s inedible.”

“So, what’s your problem,” No. 1 says again

And there lies the difference. Distributors in a network marketing program that are merely buying product to buy into the deal as opposed to an intention of really making a market for it, are really working a pyramid scheme, not a legitimate direct selling business. Remember, when you offer this opportunity to your next-door neighbor or your best friend, it’s your credibility that’s going to be on the line for years to come.

What to Look for – A Checklist

So, what do you look for with respect to legitimacy vs. pyramid? Here’s a good checklist to consider.

1. Product and Price

Does the company offer a high quality product for which there is a strong demand in the real world marketplace? Is the product fairly priced and priced competitively with similar products? Can the product be demonstrated, and does it stand out when you show it to friends? Is the product proprietary to the company, and available only through its distributors? (Have you ever noticed that you can’t buy Avon products in stores or Shaklee vitamins at pharmacies?) Is it backed up with a customer satisfaction guarantee?

Is post-sales service or customer assistance available? Do the people who participate in the program buy the product enthusiastically based on its own merits, even if they don’t participate in the compensation program?

2. Second, No Investment Requirement

Can you participate in the company’s program without having to make any investment other than purchasing a sales kit or demonstration materials sold at company cost?

3. Third, Look at Purchase and Inventory Requirements

Can you become a distributor or sales representative without having to fulfill a minimum up-front purchase or inventory requirement? (When you are pitched to put thousands of dollars of inventory at the very beginning, run fast in the opposite direction.) Does the company’s compensation plan discourage inventory loading? Garages and backrooms filled with product serve no useful purpose to anyone.

4. Fourth, Look at the Sales Commissions Sources

Are sales commissions paid only on actual products or services sold through distributors in the network to the end-user or ultimate consumer? (This means that products don’t end up in basements and closets. They are used, because they have genuine value.) Does the compensation plan avoid paying commissions or bonuses for the mere act of sponsoring or recruiting? (If it pays headhunting fees, it is illegal.)

5. Fifth, Check the Buy-Back Policy

Will the company buy back inventory and sales kit materials from distributors who cancel their participation in the program, as long as these items are in resalable condition? (This policy is required in states that have adopted multilevel distribution statutes.)

6. Sixth and Very Important, Look for Retail Sales

Is there an emphasis on actual retail sales to end-consumers? Can the company demonstrate efforts to market products to the ultimate consumer? Do the company’s distributors have ongoing retailing requirements to qualify for commissions? What is a “retail sale?” The industry and many MLM statutes include both sales to nonparticipants and purchases in reasonable amounts for personal use by distributors. Some regulatory groups, including the FTC, have historically rejected personal use as a legitimate retail sale. Stay tuned as this debate continues. The legislative trend is definitely supportive of the industry position.

7. Seventh, Expect an Active and not Passive Role for Distributors

Are distributors in the company required to actively participate in the development and management of their networks? (Many of the MLM statutes require that distributors perform bona fide, supervisory, distributing, selling, or soliciting functions in moving product to the ultimate consumer.)

8. Eighth, Watch Out for Earnings Misrepresentations

Do the company’s literature and training materials scrupulously avoid claims of income potential that is promises of specific income levels other than demonstrations of verifiable income levels within its program? (The Federal Trade Commission, attorneys general, and postal inspectors all have their eyes on the matter of earnings representations. The acceptable approach emerging is that there should be no earnings representations unless they are based on a verifiable track record of the average earnings of distributors. For instance, a company should have statistics to show the percentage of active distributors and the average earnings of active distributors.)

9. Finally, Look for Good Training

Does the company offer its independent distributors solid training opportunities in sales and recruitment? Are different levels of training offered to match the increasing levels of experience and responsibilities of distributors?

Authored by Dr. Robin Rushlo

Copyrighted May 2006

Rights owned by Soaring Eagle Companies LLC

No Net Needed


May not be sold in any form or for any gain

Of any kind

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