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These ads promise fast riches and simple work. But can any business be that simple?
For people keen on working from home - but lost as to what type of business to launch - network or multilevel marketing (MLM) brings both opportunities and pitfalls. Names like Rexall, ACN, Mary Kay, Tupperware and Amway are among the best-known direct sales marketing programs.
While the products are different, the model is the same. Distributors solicit newcomers - including family and friends - to buy products. The hope is that those customers then will become salespeople themselves - or part of the distributor's "downline." With each sale, the "upline," or recruiter, earns a commission. The problem for many is, so, too, do a hierarchy of distributors higher up in the organization.
In 1999, multilevel marketing programs rang up $90 billion in sales performed by 27 million people, according to the Direct Selling Association, a Washington, D.C.-based trade group. That figure was up from $79 billion in sales and 24.9 million people the year prior, the organization noted. Almost 80% of all sales were performed face-to-face, the association reports, and more than two-thirds of that was done in the home.
To be sure, not all network marketers have success stories to tell. In fact, the downsides of being downline can be disastrous, says Joyce K. Reynolds, co-author of False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes (http://www.falseprofits.com ).
Most MLM and network marketing models all are built upon "pyramid schemes," she says, meaning people higher up in the organization profit greatly by recruiting more people to the downline.
MLMs have grown in popularity as job security has weakened, Reynolds said. The practice is viewed as a simple way to change a career path or build a business without having to grow the traditional infrastructure of product development, market research or sales, she said. Moreover, Reynolds says, "people are addicted to the notion of big, easy money without doing a lot of work." She questions who wins in such a situation.
"The business aspect of pyramiding is a voracious representation of eating the downline in order to support the top," she says. Though the subject of occasional federal and media scrutiny, MLMs face few regulations, she adds.
People seeking to become involved in network marketing opportunities should consider whether they're in it for the pleasure of self-employment, or strictly to make money, she says. Further, Reynolds stressed that people should consider whether it's a business opportunity they'd like to bring a family member into - and profit off of. After all, success in an MLM is derived from creating a strong downline, she says.
With monthly or even weekly meetings and other programs designed to motivate recruits, people often succumb to a "delusion" of MLM success, Reynolds says. Some organizations require a minimum monthly purchase volume flowing through the stream before upline starts earning commissions off its downline, she adds. Thus, some people will backload, or buy the minimum (usually $500 a month) to earn their commission through their downline.
"Now their garage is overflowing with product, and people take a long time to notice that they're not selling product. All they're doing is buying and stocking it," she says. "It takes time for the delusion to be shattered because they keep you going to these meetings that reinforce the mindset."
Reynolds warns newcomers investigating an MLM opportunity to not rely on testimonials or sales presentations alone in making their decision which company to work with. Before signing, call the Direct Selling Association to ensure the company is a member in good standing. Before signing on as a distributor, don't rely solely on the comments or testimonials of existing members. Have an accountant and attorney review income statements and annual reports from the company. Contact your state attorney general and better business bureau to see if any complaints have been filed.
