"Multi-level marketing (MLM) is a strategy for the sale of products or services where the person selling the product gets commissions for sales made by people they've recruited to sell the product." This type of business model has both benefits and drawbacks. Companies like Amway, Avon, Herbalife, and Mary Kay are all examples of MLMs that have been around since before 1975.
Many people have asked themselves this question “ Is MLM a Pyramid Scheme? ”, but the answer is not so straightforward. There are arguments for both sides of this debate, which makes it difficult to come to an informed decision. In order to help you make up your mind about whether MLM is a pyramid scheme or not, we will list some pros and cons that can be used as evidence either way.
MLM Pros and Cons:
The company does not need to be good at advertising in order for the product or service to become popular. This is because new agents can help with promotion efforts, which gives them an opportunity to earn commissions from their recruits' sales.
It's a direct selling method where people get paid for actual work that they do and this helps build trust among members of the community. In some situations, it also leads to increased socialization opportunities between individuals who enjoy each other’s company but may live far apart from one another.
The company does not need to spend large amounts of money on research and development because it is already providing an existing product or service that people are willing to buy.
There’s no limit to how much you can earn if you work hard enough at the business, but only a small percentage of representatives make substantial income (compared with other types of businesses).
The company is able to operate in a more flexible manner because it does not have the same legal requirements that larger corporations do.
Having a network marketing company allows people to find success in an industry that wouldn’t normally be available because of their limited resources.
The model for this type of business is simple, so the system can easily expand as more recruits are added and sales increase. This means there will continue to be new opportunities for those who wish to join without having any previous experience or contacts within the field.
Because representatives have direct access to customers, they're able to build stronger personal relationships with them by speaking face-to-face about products rather than simply trying out advertisements on TV or other media outlets that don't always guarantee a positive reaction from potential clients.
There are fewer requirements for starting this type of business than with other types. This could lead to having representatives that don't have the proper knowledge or training for their position, which can cause problems down the line when they try to sell items and services to customers who may be unimpressed by what they’ve been told.
Many people lose money because it's easy to get caught up in promises made during recruitment efforts where you might be encouraged to invest more than you're actually able (like buying expensive products just so you'll look like a better candidate).
Because there is no ceiling on how much members can earn, some participants become focused on simply making as much profit as possible rather than helping others through direct sales or recruiting efforts.
It’s easy to become distracted by the opportunity of earning a large amount of money quickly and forget that this won’t happen unless you put in an enormous amount of work for it, which can be discouraging if someone is not willing or able to do so.
The people who are at the top make most of the profits because they've recruited more agents below them (most likely family members or friends) who buy from them directly rather than going through their own customers. This limits how much lower representatives will earn over time as new recruits aren't being added very often, but those whose personal networks have been used up tend to give up on their business before then anyway.
Members may feel pressure to maintain a certain standard of living and spend more than they can afford in order to keep up appearances with everyone else
A small percentage makes most of the money, which means that many people don’t see any return on their investment for months or years until new recruits are added (if at all). People who want results faster may end up losing interest because they feel like it's not worth their time when there isn't much chance for them to earn back what was initially invested.
As you can see from these pros and cons, there are definitely aspects of multi-level marketing that make it interesting compared with other types of businesses but disadvantages exist as well. Ultimately, only an individual's personal preferences and goals will be able to determine whether or not this type of business strategy is right for them.