A major part of the MLM pitch is always that their company is different. This MLM is not about recruitment for profit, that would be a pyramid-like approach (though not a pyramid scheme as many MLM-promoters will quickly point out). This company is different because our product is amazing, so amazing no store will sell it! No, I jest, of course they don’t say that… they say it’s so amazing the company really wanted to deliver it directly to consumers, a more efficient method of reaching consumers which is why we can offer you great discounts, and commissions, and this amazing business opportunity that goes along with the product. Of course to be clear, the business opportunity is just the added bonus, it’s all about the product!
If you’re thinking about MLM understand this, the industry relies on lack of evidence in this one key area as much or more than any other to create a level of doubt about whether the business model works or not. Estimates of potential earnings usually center around somebody actually selling products to consumers. And, that means selling the products at retail prices. Which goes back to the claim often made that MLM, network marketing, or direct selling, is somehow more efficient than other models of distribution.
The debate over whether (in theory) an MLM could be “more efficient” is one that is too nuanced to get into. I would concede the point (though it’s less relevant than actual sales) that anytime a manufacturer is producing a product, then shipping it directly to a customer, that “might be more efficient” compared to a model where you have vast distribution networks including wholesalers and retailers. However, this does not mean that it’s a blanket, absolute true statement. It really depends a lot on the product, and on the volume. Because when we talk “efficiency”, we’re actually talking about costs of shipping, margins/markups, and costs of marketing. And because all these things vary according to the type of product, and to the volume of sales, and to the location of manufacturer, location of customer, and the input variables such as raw materials used to make a product, it’s impossible to universally state whether a model is more or less efficient. Clearly the traditional distribution models used in many industries seem to be more efficient than MLM, if you judge based on the pricing of products. Consistently one of the complaints about MLM products is that their prices are much higher than similar products found in store. This is one of the reasons so many MLM’s choose products that are difficult to compare directly. Nutritional supplements, beauty products, a lot of “junk in a bottle” products are featured in MLM’s because the price of a certain formula of junk in a bottle, can be $5 in one store and $50 in another store and it’s there may not be much difference between them other than perception of value created by the packaging, the product claims and how or where it’s sold.
Looking at why MLM’s have such poor results selling directly to consumers there are a few factors that stand out consistently but remember, the exact reasons for poor sales performance can vary from one network marketing firm to another. One thing is for sure, anybody that wants Amway soap or Mary Kay lipstick certainly already knows it’s available. Modern, new MLM’s might try to show up with an innovative, exciting product, but again it isn’t long before the saturation means everyone has already heard the pitch for the product. And most MLM participants, even if their company claims to be product-based, never even try to sell the product to consumers at all. Have you ever been approached by an MLM trying to recruit you? Of course you have! Dozens of times perhaps? Have you ever had an MLM participant approach you only about buying their product? Maybe you have… I haven’t. And most people will say the same. It’s a rare day Amway knocks on your door selling soap. Being product-based is just a philosophical argument MLM recruiters use to justify their activities and inflate potential earnings, in reality all MLM’s are consistently recruitment-for-profit organizations where the product is merely a sideshow.
- Product price is too high. Is it the need to create massive commissions to empower recruiters? Is it the relatively weak sales volumes compared to manufacturers of other products? Whatever the reason, consumers routinely rate MLM products as overpriced. Thankfully for MLM recruiters, selling products to consumers is so rare that almost none of the MLM’s billions in annual sales ever happen at retail prices. Almost all is bought by what I call the “sucker fish” that the “sharks” are feeding on at the top of the downline.
- Consumers don’t trust direct sellers. Although direct sales clearly works in traditional businesses, it’s also a method of marketing that has evolved year after year. Distrust of salespeople in certain situations is as high or higher than ever. Overwhelmingly people want to avoid salespeople, realizing that far to many lack an ethical approach to sales. When it comes to products sold via network marketing, the obvious question is why isn’t this in a store? What’s the refund policy? If it’s a product that could break, what’s the warranty or how are returns and service handled? MLM distributors of course may have good answers for these questions, but it’s an uphill battle to achieve sales. At the very least it takes a lot of time. Now in a traditional business a professional sales person may be selling anywhere from $10,000 a month to 5-million a month in order to be considered successful. In MLM it’s not unheard of for somebody to spent dozens of hours of their time to achieve just a handful of sales worth only a few hundred dollars. MLM recruits quickly realize their getting paid far less than minimum wage to be sales reps. That’s when the idea of selling to consumers goes out the window, and recruiting becomes the only way to recover their investment.
- Product quality issues. Many MLM’s rely on bold claims about the effectiveness or quality of their product. They realize while financially only the recruiting matters, people generally have enough ethics that they will not choose a company where they truly believe the product is shit. Become a seller of shit doesn’t rank high on most people’s goals in life, though that’s exactly the end result for most MLM recruits. Independent studies and reviews of MLM products suggest that some products are good quality, and meet various relevant standards for quality. However, to make sales to consumers the seller must convince the buyer the quality of product pairs well with the price. They must also be selling to a qualified prospect, someone who actually needs the product.
- Lack of sales skills. Let’s not let the recruits themselves off the hook here. If somebody is “good at sales” that’s a great professional skill, because did you know that’s one of the main skills most successful business owners have? Of course MLM’s will try to convince you that if you’re skilled at sales, flogging their stuff is the best way to monetize that skill. This is completely false. Starting your own business, or doing professional sales for a reputable company are both the most proven and most lucrative ways to monetize sales skills. Here is the reason though why MLM’s don’t routinely have good sales to consumers, because sales is not a common skill. And because sales skills also require good marketing support, which some MLM’s may provide on the recruiting side, but rarely manage on the consumer retailing side of the business. For many MLM recruits, the reality is that they lack the communication skills needed to be effective in sales situations with consumers. They lack the diligence in following up. Most try to get by on enthusiasm, which might produce results in the short-term when pitching to friends, family and co-workers, but does little to penetrate the thick wall protecting the pockets of most consumers. Consumers are better guarded against sales pitches than most MLM recruits realize. And it takes the right product, right price, right pitch, and overall effective selling skills to have any chance of making sales consistently.
- Lack of commissions on small sales volumes. It’s worth pointing out to anybody that might have had the experience (perhaps living it right now!) of signing up to an MLM and let’s say making sales regularly for the first few weeks. You might read this and say well that must be other MLM’s, not my wonderful XYZ networking marketing distribution business. The company said it was product-based, I registered and bought the product, and I’m already making sales. I’m going to meet the targets for re-orders (quotas for commission etc.) and I’m confident it will grow. Okay, well check in again after a few more months. Initial sales results often confirm to recruits that they have a viable business, and for the upline recruiter, they provide this nice boost in their commissions when you re-order. The recruiting for profit would not work as well, and in some it doesn’t which explains why some MLM’s fizzle quickly as a company, if the recruits fail immediately. No, there is usually a period where you utilize your personal and professional relationships to make sales. And because you have a partially open door, the sales happen faster, you face less rejection and everything looks rosy. However the presumption this will continue or sales will increase, overlooks that many of these sales are sympathy sales, or are because of the trust you’ve built up with people over a lifetime. The point is once selling to strangers, real life consumers, you’ll find the commissions made on small volumes of sales will not be significant enough to justify your time. Making under $1/hour for sales efforts is a common story repeated by millions of MLM recruits. It reflects one of the key reasons MLM’s work (for the company itself) because while it would not be legal to hire salespeople and pay them $1/hour with no benefits, MLM recruits provide all this nearly free sales work with enthusiasm!
It’s always possible that some MLM company will come along with products that really are a hit with consumers. What if the cure for cancer is created by Amway, would consumers by Amway SaveYourLife? Probably, and thankfully there would be stockpiles of it in every garage. Until then if you’re approach by an MLM recruiter or are considering any company in the industry, demand to see their financials related to consumer sales. Don’t let them get away with saying they don’t track that information, or saying that they can’t release it. Don’t accept partial reports, or local reports. Any business must do basic accounting, and nothing is more basic than a business tracking who buys it’s products. Every MLM knows the truth, the often dirty truth, that the only customers it has are the distributors themselves and that they buy as much as 99% of the products sold. And that their retail pricing used in earnings estimates to lure recruiters means nothing because they are in fact almost never actually selling at retail.