Ever thought about joining a multi-level or network marketing company? First let me say we have friends who involved in network marketing businesses and have done quite well with this business model. Some make tens of thousands of dollars a year or more, get bonuses, have earned fancy new cars, earn free vacations, free electricity, etc.
On the other hand others, the vast majority of those of us who gets involved in this type of business model, seem to spend a lot of time and effort for a couple hundred a month at best. A majority of those who get involved with a network marketing business model will never make a profit. In fact, most people lose money on this network business model from research.
Since I’ve been involved in three network marketing companies here’s 7 questions I’d suggest asking before considering getting involved.
1. How long has the company been in business?
If the company has been around for at least a few years they will have successful people who have paved the way. If it is a new company it could go really well for you to get in at the beginning. It could also be a lot riskier as newer companies tend to fail more than well established companies. Getting in at the beginning means there is potential for growth. On the other hand if the company is well established the market may be saturated.
2. Are the products or services appealing to you?
If you can’t relate to the products you are not very likely to succeed. Would you buy this product for yourself or your family? Would you recommend this product or service to friends if you weren’t paid to do so? Have you actually tried the product or service? Does the company offer a product warranty? How easy is it for customers to cancel their subscription, get re-funded, or get a defective product replaced? Do the products or services competitive both in quality and in pricing? Can you get reimbursed for products that are no longer offered by the company?
3. Who are the founders and leaders of the company?
Leadership sets the tone and culture for a company. Typically there are three well known leaders in any organization. The public relations figure, finances figure, and the marketing figure. Sometimes there’s overlap in those positions within a company. What is their history? Do they have proven business expertise? Have they had prior successes or failures that would impact this company? Do they have a track record of success in network marketing?
4. What type of training is offered?
Is the training primarily done online or in person? Is there sales training? Is there online etiquette training for recruitment on social media? Is there on-going resources for training to better understand the product or services?
5. What is the initial and on-going investment?
Very rarely do network marketing companies not require an initial investment or buy in. You are purchasing the rights to use their products and brand. That said, do you have the money in your savings to invest in this company? If you’re thinking about using your rent or grocery budget to buy into this company perhaps you should wait to save up cash. Never buy into a network company by using a credit card or personal loan. What kind of on-going or “maintenance” investment is required? Do you have to buy a lot of inventory at the beginning and then more on a regular basis? Do you have to buy materials or attend meetings on a regular basis?
6. How do you earn money?
Is the compensation formula complicated or is it easy to understand? Are you buying products and services wholesale? Is there a suggested formula for profitability? How long would it take you to get a return on your investment? Is the compensation based on commissions or company profitability? If it is based on commission how does the commission system work? How often do you get paid? How often do the sales, commission structures, or promotions change? How often is there inventory turnover? What is the catch? How much was the average income for the company’s representatives, consultants, or distributors last year?
A warning from my personal experience regarding earning money with network marketing. Dollar bills don’t sprout wings and fly into your checking account. You have to put the time and effort into the business to make it happen. Most people who succeed at this kind of business have been at it for years, are master salespeople, know how to network, and invested a significant amount of time to succeed.
That said are you interested in what people actually make? Check this 2007 data out on Your Travel Business. This was the first Network marketing company I bought into. Interestingly enough 77% of active representatives made on average $90.32 a year. Less than 2% of this company’s active representatives made on average over $20,000 a year. Nearly 81% of all representatives didn’t earn a commission check in 2007. I was involved with this company back in 2005 and 2006. It was after I got out that multiple lawsuits were filed or settled by this company between 2006-2009.
Of note regarding the second company I was involved with called Send Out Cards, the average yearly income for all U.S. representatives (or “distributors”) at all ranks in 2012 for active distributors was $491.92 and inactive distributors $188.50. Sixty-two percent (62%) of representatives did not earn any commissions in 2012. In 2011 the numbers were even less impressive.
The third company I bought into was Ambit energy. I believe this is actually a legitimate business that many people make money with. I admit I didn’t really work the program, make the contacts, or ultimately believe in the product or company after digging a little deeper into it. The rates are average although the incentive to sign up 15 customers for free electricity was very appealing. After a few months of people consistently telling me they weren’t interested, already had the service, didn’t like the service, weren’t interested in network marketing, and exhausting most of my contacts I realized I didn’t want to be “that guy” people dreaded talking to or hearing from. The consumers speak for themselves here.
Among the top global direct selling companies in 2015, company names stand out such as Amway, Avon, Herbalife, Mary Kay, Vorwek, Natura, Tupperware, Premerica, It Works!, Team Beachbody, Scentsy, Plexus Worldwide, etc. Jamberry is also a worthwhile mention.
For the sake of time, I’m going to briefly mention Amway since it is the largest network marketing company.
Here’s a quote from the USA Today article:
“Active” Amway distributors earn an average of just $115 a month, according to Amway’s latest disclosure statement. Just a quarter of 1% (0.26%) make more than $40,000 a year, which Amway attributes to the fact many work part time. Active distributors, which describes about 60% of Amways’s 600,000 North American distributors, get at least one bonus check, attempt to make one sale or attend one meeting a year.”
7. Is there a mentorship program?
Do you have an “up line”, “coach”, or someone who can show you the ropes? No man or woman is an island as the saying goes. It also takes a village to raise a kid is another great saying. You can’t do it alone. You need a good team to support you if you’re going to succeed. You rarely succeed alone at any business. How much does your “up line” or “coach” make a month? Ask them to show you at least 4-5 check stubs or automatic deposits. If they’re willing ask to see last year’s tax returns to back up their claims. As the Jerry Maguire saying goes: Show me the money!
The most important question you can ask when looking at a network marketing opportunity in my mind is: Do I have the personality, will power, commitment, self-motivation, human network, patience, and is this the right time to pursue this opportunity?
I would also check with a local consumer protection agency, the Better Business Bureau, and read reviews online.
Good compensation plans can be somewhat complicated. Don’t let this scare you away. Take time to understand the effort needed and the reword for your investment.
Ask a lot of questions. Also ask someone outside the company who is successful and has experience at network marketing what he or she thinks of the business model.
You will be tempted to make a decision on gut feeling and emotions. Particularly if the opportunity is presented by a friend or you are in desperate need to increase your income. Don’t be hasty in making your decision. Take at least 24-48 hours to think it over. Weight the pros and cons. Do NOT go to a recruitment meeting or presentation and sign up the same day. If you are married or have a significant other, talk to them about the decision.
My advice? Be very careful. Again, do your research on the company and ask questions. Sure, try a networking marketing company once if you’d like. Make sure you have the money to spend and in fact lose though based on the links above.
Maybe this network marketing business model will work for you, you’ll be very successful making tens of thousands a month, and you’ll be able to retire at 40 with “financial independence”. On the positive side, keep in mind this opportunity could potentially mean a little extra cash each month. You might even be able to quit your day job and set your own work schedule. At worst you will have spent some money, some time, and some energy in an endeavor that didn’t pan out.
- Dave Ramsey: Guide to Joining a Network Company.
- Dave Ramsey: Dave explains how network marketing programs work.
- Dave Ramsey: Did you know? Dave doesn’t specifically endorse or promote any network marketing, networking marketing, or direct sales organization. Be warry of anyone who says otherwise.
- Forbes: Is Multilevel Marketing a bad word?
- Business Insider: 5 Signs that MLM “Opportunity” Might Be a Scam
- Washington Post: Networking 101
- John Maxwell: An Investment in Leadership Pays Multiple Dividends – 8 minutes
- Dave Ramsey: Should I get involved in multi-level marketing? – 9 minute video
- Clark Howard: Clark Howard talks about Network Marketing – 4 minute video
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Are you thinking about joining a network marketing company this year? Or perhaps you are already in one. What has been your experience with network marketing?