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Finding The Right Business

Mystery to Me

What About Network Marketing?

By Jane Easter Bahls

While you'll see dozens of business opportunities advertised in this magazine, some direct-sales companies you'll only learn about by word-of-mouth. Instead of pouring money into advertising, network marketing or multilevel marketing (MLM) companies build sales through a network of independent distributors. If you become a distributor, your goal is to build a "downline," or group of people you recruit into the company, because you'll earn a percentage of every sale they make.

The products these companies sell vary widely, but most are consumable products that customers will buy over and over. For instance, the oldest and largest MLM company, Amway Corp., started in 1959 with cleaning products but now offers a range of home products from food supplements and cookware to office supplies and even furniture. Mary Kay Cosmetics Inc. sells skin-care products and cosmetics. The Longaberger Company offers hand-woven baskets. Other MLM companies offer everything from water purifiers to pre-paid legal services.

Is MLM for you? That depends on your temperament. While MLM companies vary widely in their structure and emphasis, all involve selling products or services to friends, family and other people you know (or persuading them to start buying through the company). Being a successful distributor also involves enlisting some of these people in your organization. If you truly dislike either of these prospects, don't bother investigating further.

On the other hand, many distributors contend that recruiting is just like recommending a favorite movie to a friend or giving your cousin a hot stock tip. These companies offer a chance to own a business with flexible hours and a low initial investment-plus the potential for a respectable income. If that idea appeals to you, you might prosper as a distributor.

Take a careful look at any MLM company you're considering and compare it to others. The differences between MLM companies are significant. Here are some questions to consider:

  • Is it a legitimate company or a pyramid scheme? In pyramids, each newcomer gives a bunch of money to someone higher up in the structure, then recruits a certain number of others to do the same. Eventually each participant is supposed to reach the payoff level and get rich-with one catch: There are only so many suckers in the world. In the end, as you might guess, thousands lose out. These schemes are illegal. Note that pyramids require a large investment at the outset, and the product or service, if any, is incidental to recruiting. A legitimate network marketing company involves a minimal initial investment and low risk. Income is based on retail sales, not solely on how many people you recruit.
  • Do you like the product? Would you buy it if you weren't selling it?
  • Does this company emphasize sales or recruiting? Some companies focus on enthusiastic presentations of the product, leaving a discussion of career opportunities to brochures and questions from interested customers. Others focus more on the money you can make by recruiting more distributors. Some stress selling to the public, while others stress enlisting distributors to buy products for their own use. Be sure you're comfortable with the expectations.
  • Where do the sales take place? Selling Longaberger baskets or kitchen products for Pampered Chef involves getting people to host gatherings where you give a demonstration and offer the products for sale. Mary Kay beauty consultants offer free facial makeovers as a way to introduce their products. Still others use catalogs. Which one best fits your style?
  • What's the compensation plan? Do you have to recruit a certain number of people before you can start earning more than a pittance? How do people get paid? At Amway and many other companies, you receive a check for your own income and that of those in your downline, so you have to spend time writing checks to people under you. (If a distributor shows you an impressive check from the company, find out if it's net income.) Mary Kay and others have each consultant or distributor buy directly from the company.

Each company has certain levels you can reach by recruiting more distributors, with bonuses for reaching each level. Those at the top can make six-figure incomes. But what percentage of the distributors reach that level? Ask for the total number of distributors and the company's annual revenue, and divide the former into the latter. Due to product cost and overhead, the average income per distributor will be less. And if a few people at the top are really getting rich, those at the bottom must be making far less than average.

  • Does the company have a track record of at least two years? Are the managers experienced in network marketing? How ofter are products back-ordered? Is there a service department to help with problems?
  • Is the company adequately capitalized?
  • Does the company have a good computer system to track sales and make sure everyone gets paid?
  • Does the company refund money on unsold merchandise?
  • Would the company provide professional-looking sales tools?

Obviously, network marketing is not easy money. As with any business, a sizable income comes from hard work, so you owe it to yourself to ask a lot of questions before getting involved.

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