Network Marketing (MLM) Revisited
The recent FTC ruling on Herbalife prompted me to write an article about Network Marketing (MLM) and it’s business model.
According to the news, the controversial nutritional supplements company agreed to a $200 million settlement with the U.S Federal Trade Commission.
I myself have been involved with network marketing in the past. Some are good, some are bad. I currently am not involved in any network marketing program.
Although the Fed came short of saying that Herbalife is not a pyramid scheme, the investors believed that this is a sign that the FTC does not deem it as one. In yesterday’s trading, by the way, Herbalife stock surged almost 10% on this positive news.
Will see if this continues next week. For my readers’ information, I do not own Herbalife stocks.
Let’s talk about Network Marketing business.
Network Marketing or Multi-level marketing (MLM) is a marketing strategy used by some retail businesses, which authorizes its employees, who are generally called distributors, agents, or associates, to sell its products and earn commissions based not only on generated sales by them, but also from other agents’ sales whom they have recruited.
These recruited distributors are known as participant’s “downline”. So MLM companies don’t pay salary but give the opportunity to make money on multiple levels.
Distributors earn retail profits from customers and commissions from the company, which are based on their own sales figures and also their downline’s generated revenues.
Generally, the distributors sell the company’s products directly to consumers by using their personal relationships.
Sometimes MLM is referred to as pyramid selling, presenting itself as a legitimate business.
Companies implementing a multi-level marketing strategy to sell their products and services are frequently criticized for their controversial operating procedures that use money from new agents to cover the commissions of above standing agents.
You can determine whether the company is using this type of pyramid schemes if it focuses mainly on recruitment, selling products to new agents and not to consumers who are out of its network. In this case, the company is forcing new recruits to purchase certain products in order to become an agent and implement the same strategy that was used “against” them.
Though sometimes risky and controversial, you can make good profits through network marketing. But before engaging in such type of business, you have to take into consideration several important things. Some of the key points are outlined below:
Make a thorough research on the company.
This is extremely important before engaging in any contract with a network marketing company. Look through all the information available and don’t forget to check the feedbacks people give on various forums and blogs about their experiences with that particular company. Who are the owners? Are they credible?
What are their products?
Make sure the products and services offered by the network marketing company are well-known and reputable in the market, for you to easily promote them.
You have to know all the details of the product you are promoting, its advantages and disadvantages, in order to be confident when marketing and selling the product.You have to develop effective ways to present your product.
Be skeptical about almost every fact that is written on the website of the company or anything that the recruiter tells you. Ask many questions or request proof of anything that seems strange.
Are they a pyramid scheme or not.
Probably the most important things to consider when choosing a company to work with is whether it operates a pyramid scheme or not.You can examine that by asking yourself the following questions – What is the company’s main revenue driver? Is it from sales to new recruits or that of to outside consumers? It likely operates a pyramid scheme if a major part of its sales come from new recruits.
Work with the new agents that you have recruited.
It is essential that you work with the new agents that you have recruited because the money you earn partially depends on the sales they generate. Therefore, you have to be careful in selecting recruits and make sure you spend sufficient time to train them.