Click to Print

On The Level

What to know before you buy a multilevel marketing opportunity
July 1, 1998
URL: http://www.entrepreneur.com/article/15986

A friend, representing a network marketing company, approaches you about "the business opportunity of a lifetime!" You've heard stories of network marketing (also called multilevel marketing or MLM) taking people from the brink of bankruptcy to six-figure incomes within months. You've dreamed of being your own boss, earning unlimited income and working from your home. Can an MLM opportunity really offer all that?

Before making any commitments, there are several things to consider: Will you enjoy working in network marketing? Is the company you're considering legitimate? Is it the best choice for you among the many MLM opportunities available? The following steps will help you decide.


Sean M. Lyden is a writer in Marietta, Georgia.

How Networks Work

Only by understanding what network marketing is and how it works can you decide if it's for you. How do MLM companies differ from traditional direct-selling ventures? The distinction lies in the number of "levels" you can build to earn income.

Suppose you sell cookware door-to-door via traditional direct selling. In this instance, you're limited to one income level. You present the product; the customer buys (or not). Your income directly correlates to your activity. If you stop selling, you stop earning.

In contrast, as its name suggests, multilevel marketing creates multiple income levels. While selling their products, successful network marketers also prospect for new recruits--people who are sold on the products, believe in the company and have the vision to market the product line and business opportunity themselves.

Here's how it works. You recruit a handful of people--say, five--who are interested in the business opportunity. Those five distributors comprise your first "level." Their customers make up your second level. If anyone on the second level buys into the opportunity and begins selling, then those sales constitute your third level, and so on down the line (hence the term "downline").

As the number of levels in your downline increases, your income grows exponentially. Ultimately, it's possible to build such a large downline that you keep earning even when you're no longer selling.

Play It Safe

Building a large downline, however, should not be your sole goal. This important distinction will clue you in as to whether an MLM company is offering a legitimate opportunity--or an illegal pyramid scheme.

Pyramid schemes mimic multilevel marketing in that they compensate distributors on a multilevel structure, providing incentive to sell the business opportunity to prospects. The difference, however, is that pyramids focus primarily on recruiting new salespeople for your downline, not on selling products or services. In fact, in many cases there is no real product or service. Be wary of any ad, flier or e-mail message that says you don't have to do anything but recruit--recruit people like you to recruit people like them to recruit people like them, and so on.

"A scam almost always emphasizes just getting bodies into the system, instead of emphasizing the building of a large network of users of the product or service," says Marcia Smith, a Fairfax, California, entrepreneur who has 16 years of experience in MLM and is a leading distributor for Mannatech Inc., a company based in Coppell, Texas, that manufactures a line of nutritional supplements.

Do a background check on the company you're considering. Contact your local Better Business Bureau (or log onto its Web site at http://www.bbb.org) for a reliability report on the company. Consult the Multi-Level Marketing International Association by phone at (714) 622-0300 or by visiting http://www.mlmia.com to see if the company is a member in good standing. The Federal Trade Commission (FTC) in Washington, DC, has information on any complaints that may have been lodged about the company; contact the FTC at (202) 326-2222 or http://www.ftc.gov

Perfect Match?

Even if the network marketing company you're considering proves to be legitimate, your work isn't done. You still need to do some research to make sure you're choosing the best company for you. Here's what you need to know about a company to make an informed decision:

1. Will it last? Many network marketing companies go out of business soon after start-up. Look for a company that has been around for at least two years and is debt-free. To verify the company's financial status, ask to see a financial statement.

"Be sure the company has sufficient capital to adequately cover expenses," says Doris Wood, an executive consultant with The Wood International Group, a management consulting firm in Irvine, California, specializing in network marketing. "Can [the company] meet its obligations for rent, products, phone and data processing to ensure distributors are paid when promised? Can it cover the cost of possible legal fees and day-to-day business operations?"

2. Are you sold on the product? "You must believe in the product or it's doubtful you'll ever be able to sell it," Wood says, "let alone recruit others to do so."

3. Is the venture committed to training its distributors for success? Many network marketers quit because no one has trained them to run an MLM business. Because they don't know how to sell, they don't get paychecks, quickly become frustrated and close up shop or look for another opportunity.

Ask what kind of training programs or tools are offered. "Look for evidence that the company pays existing distributors to conduct workshops for its newly acquired affiliates," says Bonnie Ross-Parker, a senior executive with The Peoples Network, an Atlanta-based MLM company that markets a TV network, available via satellite dish, showing motivational programming 24 hours a day. "A solid network marketing company places a high premium on training and support."

4. How and when will you get paid? "Beware of companies whose compensation package requires a Ph.D. in economics to unravel," Ross-Parker warns. "Representatives may say, `You'll figure it out when you get paid.' That's a risk not worth taking."

5. Does management have the necessary leadership to take the company into the 21st century? "When researching an opportunity, make sure the company is planning ahead to deal with exponential growth," Smith says. Ask for background information on the company's executives. What experience do they have in business as it pertains to MLM? What's their track record? Also find out what their vision is for the company. Do they have what it takes to reach these goals?

When you're choosing a network marketing company, ignorance is not bliss. Evaluate whether or not MLM is for you, make sure the opportunity is legitimate, and determine whether this company will best help you achieve your financial goals. If the opportunity passes these three tests and sounds exciting and challenging, then go for it!

About Face

Back in 1988, Janice Aruta of Orlando, Florida, then 26, was living the proverbial country song. Her husband had left her, her income left her faster than it came in, and it seemed her dream "to do something special with my life" had left her, too.

Then Aruta read an ad that marked a turning point in her life. "Current distributors netting six figures monthly!" it promised. Despite her skepticism, Aruta called the number. A distributor with NuSkin International (NSI), a network marketing company that manufactures a line of personal-care products, answered the phone.

"My choice was either to go back to school and learn how to work for someone else for 30 or 40 years, or pursue my own business with NSI and determine my own income and hours," Aruta recalls. "To me, the choice was clear." She charged the $80 initial fee on her credit card, beginning her entrepreneurial career with Provo, Utah-based NSI.

Since that day, Aruta, now 36, has been singing a different tune. Her income has risen to more than half a million dollars per year; she is happily remarried . . . and she is living her dream of doing something special with her life.

The key to her success? Enthusiasm. "Network marketing is about people and relationships," Aruta explains. "People want to be around positive, caring and enthusiastic people. By this I don't mean you have to act like a frenzied cheerleader or a slick sales type. Genuine people are the ones who succeed in the long run."

Aruta's advice to new network marketers: "Choose one company, choose wisely and commit. Do whatever it takes to develop a massive belief in the company, its management, its products or services, its support [for distributors] and its growth potential. My belief in NSI gave me confidence, and my commitment gave me credibility with others. People follow committed people."

Good Calls

Husband-and-wife teams form a strong one-two combination in the quest for success in network marketing. Twins Nick and Todd Matthews, 32, of Irvine, California, have taken this concept to another level. Nick and his wife, Tracy, 23, and Todd and his wife, Jewel, 29, make a powerful (and profitable) foursome as distributors for World Tech Marketing, a network marketing company also based in Irvine, California, that sells long-distance and other telecommunications services.

Before joining World Tech in 1996, the twins worked together for 12 years at a local grocery store, barely making ends meet. "The long hours we spent working left little time for family," Todd recalls. "It just wasn't healthy."

Then a friend came along who told them about World Tech. "We were ready for anything that looked promising," says Todd. With no hesitation, the brothers and their wives decided to team up, and the two couples invested the $295 necessary to get started.

Two years later, the four-person team is ranked among the highest-earning distributors in the World Tech system. "Some months, our income is more than we made in a whole year at the grocery store," says Todd.

What's their advice to would-be network marketers? "Don't let negativity get to you," says Jewel. "You'll run into those few negative people. Just keep your chin up, stay positive and keep telling yourself daily, `This is going to work.' Anything can work if you put your mind to it."

Have You Got It?

What do successful network marketers have that others lack? Here are nine essential qualities you need to succeed in MLM:

1. Vision. What do you want to accomplish in your MLM business? Be specific. Instead of saying, "I want to surpass my previous salary sometime this year," say, "I want to earn $4,000 per month by December of this year."

2. A burning desire to succeed. Desire is the internal engine that propels you toward your goals. Fuel your desire by reviewing your goals every morning and just before you go to sleep at night. Using all your senses, visualize yourself achieving your goals. If your goal is to earn enough money to buy a sailboat by June, picture the boat; feel the railing; smell and taste the salty air; and hear the sound of the wind whipping against the sail.

3. A businesslike attitude. MLM opportunities typically have low start-up costs. Unfortunately, this often translates into a weak commitment on the start-up marketer's part. Commit to pursuing your MLM business as intensely as if you had invested $100,000 to get started. Prepare a written business plan--and follow it. Review your plan at least once a quarter. When you treat your network marketing venture as a genuine business--as opposed to a hobby you pursue "when you feel like it"--you'll succeed.

4. Self-discipline. Do what you plan to do. If you have 15 sales calls scheduled, make those calls--no matter what. Each action you plan and accomplish takes you closer to your goals.

5. Willingness to learn. Just because you were successful in previous jobs doesn't mean you'll automatically earn top dollar in network marketing. This is a new game with a different set of rules. Take every opportunity to learn those rules. Study books on MLM, attend seminars offered by your parent company and spend time with your sponsors.

6. Belief in your product or service. Are you proud to represent your MLM company? Do you get excited telling others about the products or services you sell? When you believe in what you do and the company you represent, you increase the likelihood that prospects will, too.

7. A long-term focus. Beware of get-rich-quick claims. Success in MLM, as in any type of business, takes time. Define the necessary steps and commit to doing them--even when you don't see tangible results right away.

8. A positive attitude. Surround yourself with positive, enthusiastic people. Listen to cassette tapes and read books that spur you on to maximum achievement. When you fill your mind with positive thoughts, you generate the energy you need to make your business flourish.

9. Persistence. As in any new business, you'll face many obstacles on your way to achieving your goals. Resolvek to go the distance. When times get tough, call your sponsors for encouragement.

Bonnie Ross-Parker is a senior executive with The Peoples Network, an Atlanta-based MLM company.

Contact Sources

Mannatech Inc., (800) 459-5013, suprhnet@cris.com

NuSkin International, (800) 487-1500

The Peoples Network, (800) 218-9916, http://www.gostarship.com/brparke

The Wood International Group, (949) 854-0484, doriswood@mlmradio.com

World Tech Marketing, (714) 653-9202, nxtstp@earthlink.com