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Friday, October 17, 2014

106. MLM (Multi-Level Marketing) – Part 1 of 3 – My Experience With MLMs

Before I begin let me emphasize we have friends who have been involved in MLM 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, etc. 

On the other hand other people, the vast majority of those of us who get involved MLMs, 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 MLM business model will never make a profit. In fact, most people lose money on this MLM business model from my experience. See the data and links below. 

There are a lot of opportunities out there. Some of the MLMs I’m familiar with include Amway, Avon, Herbalife, Mary Kay, Tupperware, Primerica, Ambit Energy, Thirty One, Scentsy, Nikken, DoTerra, Jabarry, Pampered Chef, Your Travel Business, and Send Out Cards. Not all MLMs are the same. Some really do offer better opportunities than others. Not all MLMs are get rich schemes. Yet some get rich schemes do masquerade as MLMs.

The opportunity is typically very enticing. I loved the idea of becoming my own boss, set my own hours, and make enough money to quit my day job. All the while working part-time and selling a product that basically sold itself? Who wouldn't want to get involved with a business model like that? 

Please be sure to check out part 2 lessons learned from being involved with MLMs and part 3 questions to ask yourself & your potential recruiter or "Up-line."

After being involved in 3 MLMs: a travel agency company, a greeting card company, and an energy company I can honestly say I’m not cut out for MLMs. Let me share my experience with MLMs with you. 

I. The Travel Agency Company (Your Travel Business)

A. The Deal: 

With the travel agency in 2005 the big money besides recruiting was really going on and selling cruises. If you were going on cruises there were some great perks. I hadn’t ever been on a cruise and didn’t really have the network for starting that business. 

B. The Cost:
There was the initial ridiculous fee of $650 to “set up” our very own travel agency or buy into the MLM business. There’s was also a monthly “maintenance fee” of about $50 to keep up your own personalized website and provide you with “training”. There were also ridiculously priced business cards which of course I bought. 

C. The Product, Competition, and the Reality:
But what about air fare, etc. you ask? Websites like Travelocity or Expedia were in full swing and the travel MLM couldn’t compete with people like me as the middleman. 

D. My Involvement: 

How did I get involved with this company? At the time I was still single and I signed up for this MLM company with a co-worker. I paid the initial set up fee and also the monthly maintenance fees. My co-worker was the “human network” guy and I was going to learn from him but that didn’t quite pan out. Note to self: In a business venture make sure the partner has a stake in the success or failure of the business. We even registered for a small business and set up our very own PO box. So after a year of losing money I called it quits and focused on graduate school instead. It was a good thing to because we got a letter in the mail saying we owed $3000 for our small business venture. Yikes!

E. Real Expected Income:
Interested in what people actually made? Check this 2007 data out. Interestingly enough 77% of active representatives made on average $90.32 a year. Less than 2% 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. 

F. The Company Fallout:
I was involved with this MLM back in 2005 and 2006. It was after I got out that multiple lawsuits were filed or settled by this company between 2006-2009.

II. The Greeting Card Company (Send Out Cards)

A. The Deal: 
With the greeting card company in 2011 it was the same thing. It was almost a great product if you were buying the greeting cards “wholesale” as a company distributor at 66-99 cents a pop. But it wasn’t so appealing as a regular end user customers paying “retail” at $3 plus shipping & handling. 

The cards were customizable yet they were a bit pricey for the value the customer received.

B. The Cost:
What was the cost? The initial fee was $395 to join and start up "our very own" personalized card business. It was a onetime fee. As if anyone would actually want to pay $400 more than once. There’s was also again a monthly “maintenance fee” of about $30 to keep up your own personalized website and provide you with “training”. Besides this each “representative” had to purchase points monthly to either give cards away or send to their friends & family. And on top of that you had to pay additionally for postage. This was never really emphasized or disclosed that I can recall. There were other products offered like stuffed animals, chocolate, and I think they even offered flowers. The cost to ship these products was ridiculously expensive. 

C. The Product, Competition, and the Reality:
We didn’t have the network and realized soon the idea, while interesting, just wasn’t a good product. Often the cards were deficient or of poor quality. Hallmark cards at the time dropped to $3 or $4 a card. Now 3 years later you can find greeting cards 2 for $1 or 99 cents in many places. Honestly, I think this is a dying industry. 

D. My Involvement:
Why didn’t we succeed? Again, with this opportunity like the first we didn’t have the network to support the business. The timing was off for us as well. We started this MLM “opportunity” right before I got a new job with a significant pay increase. I had been at a dead end job for couple years. 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. 

It seemed like a lot of activity without a lot productivity. If someone wanted to use this business model simply to send out cards to friends or family for their own personal use over the course of their lifetime I guess it wasn't a bad model.

E. Real Expected Income:
Of note regarding this MLM 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. 

III. The Energy Company (Ambit Energy)

A. The Deal: 

With the energy company in 2013 again it was the same thing. It was a great product if you could get x amount of people to sign up or switch to your company as customers. It meant “free” electricity or a credit of the average of all x customers towards your electric bill if you could get x customers to sign on. You also got compensation to recruit others into the business. Customers could also expect monthly travel rewards points for signing up with this MLM company.

B. The Cost:
There was a one-time fee with no annual renewal for $429. As if someone would want to pay over $400 more than once. There was also a monthly “maintenance fee” of about $25 to keep up your own personalized website and provide you with “training”. 

C. The Product, Competition, and the Reality:
Problem was this company had already been in our market for nearly a decade. If we’d gotten in at the startup phase we could’ve made some serious money. A saturated market meant a lot of the people we knew already had either tried the service or were already under contract with this MLM company. We also ran into the fact that many of our friends were already representatives or “consultants” with this MLM company themselves. As to the product itself the MLM rates weren’t the cheapest in the market nor were they the most expensive. Finally, the timing on this was off for us. We signed up right when we bought our first house. We also had a high risk pregnancy and our little one was born early. 

D. My Involvement:

Let me first say that I believe this is a legitimate business that people do make money with. The way I’ve seen this done is in the opportunity to get free energy by signing up 15 customers and getting a monthly credit for those 15 customers average bill. 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. After a few weeks of people consistently telling me they weren’t interested, already had the service, didn’t like the service, weren’t interested in a MLM, and exhausting most of my contacts I realized I didn’t want to be “that guy” people dreaded talking to or hearing from. 

E. Real Expected Income:
I did actually make $100 with this energy company. It was the only income I ever saw in the nearly 8 months we did the MLM program. This was by far the best “Up Line” we had and yet they had limited success as well. The consumers speak for themselves here. There are positive and negative reviews. The best feature this opportunity offered was having "free" electricity by signing up 15 customers. 

Again, this has been my experience with MLMs. Kudos to those who day in and day out do their thing to make supplemental money or a decent living with the MLM business model. It is a form of "entrepreneurship" at its best some would say. Yet it is not for me. As statistics show it certainly is not for everyone. In fact MLMs are not for most people. 

Is the MLM business model for you? What has been your experience with MLMs?

 Leave a comment!

Please check out part 2 lessons learned from being involved with MLMs and part 3 questions to ask yourself & your potential recruiter or "Up-line."


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