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MLM = Make Little Money?

By Guest Blogger(view all posts by Guest_Blogger)
at 12:47PM Thursday July 22, 2010
under Personal Finance

Multi-level Marketing (MLM) is way to reach for the stars, live out your dreams, work for yourself, be all that you can be--all while making on average $115 per month...

Wait--what?

According to the disclosure from what is arguably the world's largest and most well known multi-level marketing organization, Quixtar (Amway) the average monthly gross MLM income for "active" IBOs (Independent Business Owners) was $115--and, depending upon the definition of "active," may actually be quite a bit lower.
Wait! Many non-MLM small businesses fail because their owners simply don't have what it takes or circumstances are such that success is just not in the works. Does the failure of many small software companies to make a lot of money mean that there is something wrong with the business model of other very successful software companies like Microsoft or Google or others? Why does MLM get such a bad rap--and is it deserved?

Let's take a look at each of these issues in turn and then you will see that many people in the MLM world, although exuberantly optimistic about their prospects for success, are in fact cramped into a system that at best restricts their true earning potential and at worst ends up costing them quite a bit of time and money with little or no payoff.

MLM vs. Regular Small Businesses

Many people in MLM fail to make a lot of money. Many small businesses fail to make a lot of money. Therefore the failure rate of MLM cannot be used as a criticism of MLM, right? Wrong.

The premise of MLM success is based in large part on recruiting additional sales reps to join up under you (called your "downline") rather than working to sell something useful to others--because after all, sales is critical to any small business not to mention being a sales person is a noble profession and potentially very lucrative.

"Well, I like to think of myself as just a type of headhunter or recruiter when I try to sign up new recruits under me," a fervent MLM supporter may say. The issue with that line of thinking is that (wait, you might not want to hear this but here it goes...) making money is hard work. Making money is not something that starts to happen by magic after attending X number of motivational seminars or by investing X amount of dollars into training materials.

In fact, making money is not just hard work but different people have different skill sets and will be successful AND unsuccessful at different things. If you sat down in front of a computer and attempted to do things like write a car insurance guide or designed a payday loan calculator or other similar things that I enjoy working on, then you may not even know where to start. Just like if you put me in front of a class of high school kids to teach even a basic science class I would be as lost as a penguin in the Amazon.

MLM's Two Faulty Assumptions

The two major faulty assumptions that MLM makes are:

  • Everyone can make good money by simply following the outlined steps. (Not true. It takes a lot of hard work, know-how and skill to have success in any venture)
  • Everyone can be good at sales. (Not true. Many people are, in fact, horrible sales people and always will be as their skills lie elsewhere. Sure, some people make money, but most MLM ventures don't pay off and to pigeonhole everyone into the mold of an aggressive sales person is not only unfair to the recruit but also the recruiter.)

These faulty assumptions are seen in many commission-only sales industries to some degree but, with the financial incentive in place for members to recruit their neighbor, their brother and their grandma, the negative consequences of these faulty assumptions for MLMs are accelerated.

So...What is an MLM Alternative?

What do you ask is a good alternative to MLM? Well, I am glad you asked! Of course, there is no one right answer, because--as I mentioned above--everyone has different skill sets and where you may be wildly successful I might not be, and vice versa. That being said, here are some general principles for finding an MLM alternative that you can pretty much take to the bank:

  • Use Your Strengths - If you are a natural sales person and absolutely love people and love selling then by all means take some sales classes, apply for a job as a sales person, start your own business relies on you selling for your success (e.g.; insurance agent, real estate agent, etc.) BUT just because many MLM programs force everyone into the mold of being the uber-outgoing extrovert who sells 24/7, don't let that force you to ignore your own strengths if they're something different than sales. If you are awesome at writing computer programs, do that! If you are awesome at graphic design, do that! If you are awesome at baking cupcakes, do that! If you--well, you get the idea...
  • Copy Someone Successful - Once you find something that you are good at, then look for a role model and copy some of their steps to success. The funny thing about MLM is that chances are the person who recruited you is not making a whole lot of money. Chances are the person who recruited the person who recruited you is not making a whole lot of money. You likely have to trace your way back to the person who recruited the person who recruited the person who recruited the person who recruited the person who recruited the person--again, you get the idea. If you want to design computer programs for a living or build custom swimming pools for a living then find another small business owner who is successfully doing just that. Emulate some of the things that they did to achieve success in your small business.
  • Focus and Work Hard - You may be tempted to just gloss over this section because the advice is so common sense. What is likely the most important piece of advice you can get is to focus in on the goals that you want to accomplish and then dedicate yourself to working extremely hard to accomplish them. Whether you are building swimming pools or baking cupcakes for a living, there is no shortcut for focused hard work. The fact that the majority of the time spent in MLM meetings is devoted to encouraging those who are not doing so well (the vast majority) with rallies and pep talks should speak volumes about where the focus lies and where it should be. There is no easy get rich quick scheme online, offline or anywhere in the real world. The same timeless principle of properly focused hard work is the only route to lasting success. There is no shortcut.

Have you ever found yourself suckered into an MLM meeting only to discover it was not what you had thought it was? What did you learn? What advice would YOU give to someone considering MLM?

Joel Ohman is a Certified Financial PlannerTM and serial entrepreneur who has founded five companies. His most recent projects include building consumer comparison websites for car insurance and credit cards. He loves buy one, get one free coupons and recommends checking out the Savings.com coupon section of the site--after reading this article of course!