What Is An MLM?

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I get asked this a lot.  What is an MLM?  In network or multi-level marketing (MLM), people sell their products to the public – frequently by direct sales or word of mouth.  Usually, the distributor earns commissions, not just for the sales they make, but for the sales made by the people they recruited.

what is an mlmSounds good.  Let’s get started.  Ahhh.  Hold your horses.  Not all multi-level marketing opportunities are legit.  If the money you earn is generated by sales to the public, it might be a genuine multi-level marketing opportunity.  However, if the money you earn is generated by how many people you recruit and your sales to them, it’s likely not.  It might just be a pyramid scheme which is illegal, and a tremendous majority of those who take part in one lose money.

If you’re thinking about getting involved with a multi-level marketing opportunity, know the details.

Examine The Products

A lot of companies that use distributors to market their products actually sell decent items at competitive prices.  However, a few offer products that are way overpriced, have dubious merits, or are absolutely unsafe to even use.

Determine what you are going to sell.  Are there comparable products out on the market?  Are the products competitively priced?  Are they safe?  Can the one who sponsored you (the distributor who recruited you) back up the claims about the performance of the product?

what is an mlmEssentially, any service or product can be sold via multi-level marketing, including fitness, beauty and health products that are not available in stores.  Be highly skeptical prior to purchasing or selling products that are advertised as containing “miracle” ingredients or results that are guaranteed.  A lot of these “quick cures” are marketed fraudulently, unproven and absolutely useless.  As a matter of fact, they may be dangerous.  You might want to contact a health professional prior to use – or even selling them.

Should you choose to buy into the opportunity and promote their products, you have to be certain your promotional materials are honest and that there is solid proof to support your claims regarding the products.  Prior to repeating any claims made by the company, make sure that there is reliable and competent research to prove them.  That is the guideline the Federal Trade Commission (FTC) utilizes when assessing advertising claims.

Know The Company

Search for and examine the track record of the company.  Search the name of the company on the internet and use words such as complaint, scam or review.  Go through a few pages of search results.  Also, you might want to search for articles on the company online, magazines or newspapers.  Find out:

  • what is an mlmhow long the organization has been operating
  • whether it has a good reputation for satisfying customers
  • what the chatter is about the business and its product on websites and blogs
  • whether the business has ever been sued for dishonest business practices

Find out at your state’s Attorney General if any complaints have been made about any business you are considering; however,  a few complaints do not guarantee that the company is legit.

Evaluate the Opportunity

Never pay for or sign your name to a contract in an “opportunity meeting.”  Slow down and take some time to mull your decision over.  The investment you are making calls for real money, so do not jump into it without researching it first.

Request from your sponsor the terms and conditions for the opportunity, including:

  • the compensation plan
  • possible expenses
  • proof of claims regarding how much money you can earn
  • the contact information and name of somebody at the company to answer your questions

Put this information in writing.  Stay away from any opportunity where you earn more by sponsoring new recruits than by selling the company’s products to the general public.  That is a sure and typical sign that it’s a pyramid scheme.

what is an mlmRemember, when you sponsor new recruits, you are the one responsible for the claims made about the amount of money they may earn.  Be realistic and totally honest.  If your promises aren’t upheld, you could be held accountable, even if you are simply regurgitating the the claims made in the company brochure or told by another distributor.

If you do not understand something, request further information until you completely understand.  Other distributors and your sponsor should be eager to answer your inquiries.  Remember, your sponsor (and those above the level of your sponsor) will get money if you sign up for the opportunity.  So, take it slow, and don’t be pressured into joining.  Be wary of scammers – bogus references paid by the business or distributor to act like they were successful making money via their opportunity.

What about refunds?

Obtain the refund policy of the company in writing.  Be certain it contains information regarding restrictions and penalties and returning any products that weren’t used.  It might look like your lessening the risk you’re taking if you’re able to return products and be reimbursed, but company policies differ on whether you’ll receive a full refund – and how long it will be.  A lot of businesses expect you to purchase seminars, marketing materials or training if you want to receive product discounts or create your own distributor network.  Find out how much money and time other distributors spent on seminars, marketing materials and training when they signed up for the opportunity and whether the company expects you to take part in periodic training.  Moreover, what happens if you decide to opt out of their training?

Ask Somebody To Read The Company’s Materials

what is an mlmYou might want to consult with a lawyer, accountant or somebody you trust who isn’t affiliated with the company to look over the compensation terms, find out whether the company can verify the claims it makes about how much money you can make, and examine the information you have been given.

Are You Suited For This Type of Work?

You need to ask yourself whether you’d like selling products to the general public.  Figure out the number of hours other distributors and your sponsor spent on their business when they first signed up and the number of hours they spend now.  Keep in mind that no matter how great the product is and how reliable the plan, you are required to invest money and sweat for your investment to profit.  Examine the other needs of the business such as shipping products, recording inventory, managing paperwork, recruiting new distributors and going to training.

Make Inquiries

Ask other distributors and your sponsor hard questions, and unearth the details.  Don’t think of yourself as being intrusive or nosy.  You are on an assignment to investigate a possible business deal that necessitates your time and money.

There answers can aid you in detecting bogus claims about how much money you might make and whether the opportunity is a pyramid scheme.  Prior to making any decisions, here are a few questions to ask:

  • what is an mlmWhat are the product’s annual sales?
  • How much of the product was sold to distributors?
  • What is your percentage of sales made to distributors?
  • In the last year, what were your expenses, including money spent on buying products and on training?
  • In the last year, how much money did you make – meaning your bonuses and income minus your expenses?
  • How much time was spent last year on the business?
  • How old is the business?
  • What were the number of people you recruited?
  • What is the percentage of the money you have made – bonuses and income minus expenses – that came from recruiting people and selling them stock or other items to get them started?


Listen to this …



The Bottom Line

It’s vital to obtain a complete overview of how the plan operates: not just the amount of money the distributors make, but also the amount of money and time that is spent on the plan, how much time it will take before they are earning money, and how big the downline needs to be before you see any money.  One indication of a pyramid scheme is if distributors sell more of their products to other distributors than they do to the public – or if the majority of the money they make is from recruiting others rather than from selling.

So, I hope I’ve answered your question, “What Is An MLM?”  Have you ever signed up for an MLM?  How successful were you?  Did you get scammed?  I’d love to hear from you.  Please share your story below.


Before you go, I need to ask you a few very important questions …

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Here’s to your success!


Wealthy Affiliate


  1. Thabo

    Hi Barb,

    I have had my run ins with MLMs and your insights are on target. I would like to add this important nugget:

    Paying for a website before you even have a trial period. I was involved with one MLM where I had to pay $17 dollars a month just to display the products that I wasn’t even selling.

    This means before I even had a chance to figure out whether the products were any good, I was already shelling money out. This was one of the so called “legit” MLM.

    I would not advise anyone to get involved with an MLM as means of making money. The WA Starter model is a better way to go.

    • Barb

      -Hi, Thabo!  Thanks for dropping by and sharing.  I love to hear from my readers.

      There are legit MLM’s out there, but you have to be careful to do your due diligence and read all the fine print. 

      I totally understand how you feel.  I am also not a big fan of MLM’s.  You have to be good at direct sales, recruiting and managing a team.  Most people are lured in by what they potentially could earn and go totally against their nature.  Somehow, they think that if they signup that all of a sudden they’ll like selling etc.

      Wealthy Affiliate is by far the better choice for anyone who wants to start their own online business.


  2. Max

    I have actually participated in an mlm company called world ventures. I was initially excited and thought that would be my calling in life, but unfortunately things didn’t work out. I felt like my success depended more so on other people despite whether or not I worked hard. I think an online business would be much more better because if you work hard at it your success will just depend on yourself.

    • Barb

      Hi, Max!  Thanks for dropping by and sharing.  I really love hearing from my readers.

      I’m sorry that things didn’t work out for you.  From what you are saying, it appears this company relied heavily on recruiting which is a sure sign of a pyramid scheme.

      Yes.  Creating your own online business is certainly a way of maintaining control.  When it comes right down to it, it is the amount of effort you put into your business that determines it’s success.

  3. Rose

    Thanks Barb.
    I know that MLM has such a bad rep, but I remember that Robert Allen said it was a method worth looking into on Multiple Streams of Income.

    And Wealthy Affiliate is great!

    • Hey, Rose! Thanks for dropping by and sharing. I love hearing from my readers.

      Yes, there are some legitimate MLM’s out there, but you have to be the type of person that likes direct selling, recruiting and managing a team. You’re kidding yourself if you try to overlook this fact. If you are not passionate about what you are doing, a majority of people will simply fail which is why I highly recommend Wealthy Affiliate.


  4. Sophia

    Hi Barb,

    I agree that MLMs have a bad reputation and I blame that on all the ads out there promising quick riches. People are desperate to believe it’s possible.

    There are legit MLMs and you can build a successful business. You make some good points about how to avoid the pyramid schemes.

    Thanks for the article.


    • Barb

      Hi, Sophia!  Thanks for dropping by and sharing.  I love hearing from my readers.

      Yes, not all MLM’s are bad, you just have to do your research and make sure the company is legit.  As you mentioned, people are desperate and overlook that they might just be getting scammed.

      My best advice is to slow down and take your time.  The offer will still be there tomorrow if it’s legit.

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