You must have heard of network marketing at some point. Multi-Level Marketing (MLM) which also refers to the same thing. Some of you might have come across what are called pyramid schemes – which some argue refers to the same thing. It is also called referral marketing and is a sales business where you earn money by selling products or earning commissions by signing up others and getting a percentage of sales they subsequently realize. I’m sure a lot of you have seen or heard of Avon products being sold this way. Let’s discuss some of the good and bad attributes of network marketing.

The obvious good lies in the prospects of making passive income. This, however, is only possible provided you sign up at the very beginning of the business or you have a very widespread social sphere that you influence. The other beneficial aspects such as networking, brushing up your marketing and sales skills are debatable. There are quite a number of negative things that MLM entails and I’ll discuss them at length.

Signing Up Fees

In most instances, you are required to pay something to start up, a joining fee or a starter pack. This is usually not easy for many interested in MLM. People end up borrowing money because of the promises of returns that are normally promised by MLM businesses.

Excessive Competition

The idea of MLM requires that you sign up as many people as you can in order to earn more money. This money comes in the form of commissions earnable per sign up and those earnable through subsequent sales made by those you sign up. Essentially, this means the more your recruits realize sales, the more you earn. Remember you are also trying to earn from making sales of the same products they are selling. Consider the fact that you are more inclined to recruit people in your immediate circle. Target customers become the same for you and your recruits. You create your own competition and the ones you recruit also do the same and so on. This gives rise to the next point.

Early Market Saturation

The scenario I’ve described above culminates in market saturation within a very short time. This happens with no significant profits realized by anyone because recruitment will be in overdrive. Most MLM models have shown that the fastest way to at least make money is recruitment. So the mere fact that everyone recruited exerts all their effort into recruiting leads to very early market saturation. Many people I know whoever embarked in MLM initiatives ended up with stocks of products at home that couldn’t be sold.

Few Actual Beneficiaries

Some surveys that have been conducted in other parts of the world have shown that way more than 90% of people realize no profit from MLM initiatives. Earlier I mentioned that MLM businesses are often times labelled as pyramid schemes (despite their denial of such). The pyramid is quite expressive of the analogy with respect to the proportions of those who benefit and those who don’t. Some studies have even discovered that only 1% (the tip) end up making huge life-transforming profits. The irony of this is that those 1% feed off the losses made by the overwhelming majority (the base). In principle, it’s said that those who sign up at the onset of the business are the ones who are most likely to realize huge returns.

Overlooked Expenses

People jump onto MLM initiatives because of the prospects of earning passive income. However, a close look shows that it really isn’t passive at all. Lots of hard work and time is spent in trying to convince people and make them sign up. In so doing often times people lose sight of the many materials and financial expenses they incur in endeavouring to recruit people. These expenses, some of which are transport, communication or food, actually end up eclipsing any conceivable profits. In principle, for you to market & then train the ones you recruit, you are using your own resources. People end up with zero profits or huge losses. The commissions are small and only amount to something when you push high volumes. Thus it’s easy to operate at a loss without even realizing it. The other immaterial expense is the loss of human relationships due to tension arising from intrusive advertising or manipulation.

Flawed Value Proposition

The products or services usually offered for sale under MLM initiatives tend not to be unique and have stiff competition. An example is Avon, which was once a widespread MLM phenomenon in Zimbabwe. The brand offers things that several other brands on the market offer. This makes selling them very difficult because of the pre-existing competition.

Misinformed Decisions

It might not be apparent at face value but MLM businesses thrive on deception, creating illusions and preying on people’s vulnerability. The promises of earning passive income are presented in a spectacular fashion which deliberately omits the bad side. The income projections are at best theoretical and mathematical. In the real world, such projections are compromised due to many factors that set in. All these aspects aren’t communicated to prospective customers beforehand and this causes people to make misinformed decisions.

Overall, I would advise people to approach MLM initiatives with utmost caution. The MLM model is prone to use in pyramid schemes. There are many accounts of people who lost immensely due to MLM based scams. Money can be made as I said but the odds are stacked against you.