Top 5 Warning Signs for Critically Evaluating MLM Opportunities

Top 5 Reasons why many network marketing opportunities are NOT a good vehicle for starting a home-based business for most people, and why MLM generally has a negative reputation:

1. Inventory Purchase Required. Significant product inventory often must be purchased to be re-sold to friends, neighbors, and family at retail (usually twice the wholesale price). The inventory required to be purchased is typically more than the rep could possibly use personally, so the full inventory must be sold or a loss is incurred. Occasionally, additional inventory must be purchased at regular intervals for the rep to remain active. If not required to purchase inventory, MLM reps often are required to pay for monthly shipments of the products for their personal use, often at a cost of several thousand dollars over a few years, for the use of consumable household products with no lasting value, which are non-income generating!

2. Products Not Priced Competitively. Full retail price in MLM companies is often not competitive with similar products available in the market from retail and discount outlets, not to mention the internet. Just look at the proliferation of specialty nutritional antioxidant drinks sold in grocery stores. While these are often priced at 40% to 60% above mass market juice drinks, they are still typically priced 60% to 80% below MLM-marketed nutritional juice drinks. Another competitive problem with MLM is that suggested retail prices of these products are often not competitive with identical products deeply discounted by competing distributors within the same MLM company, so lower level MLM reps are often forced to discount products by 33% to 50% to sell any significant inventory. In the end, profit margins for the MLM rep are often nominal or nonexistent, and any unsold inventory must be written off as a total loss or re-sold back to the company at a significant loss, so total net profit after all the time, effort and money invested is often a negative or extremely small positive return.   A common practice in the industry is to charge an excessively high, uncompetitive price for a product as a ruse for recruiting distributors and for converting every retail customer into a distributor.  Whenever there's a high product price for common customers who are not distributors and another much lower product price for distributors, you'll know this tactic is being used on you.  Bottom line, you should not have to pay more for a product just because you do not intend to market it to others!  The product should sell itself at its retail price, and you should not have to actively recruit others.  If the product offers a compelling value to many people, buyers of the product WILL ASK FOR THE OPPORTUNITY TO OFFER IT TO OTHERS.  You won't have to twist someone's arm to become a distributor just so they can personally get the product at a price that's not excessively inflated!  This business model of many MLM's has been overused and abused, and it simply doesn't work anymore the way it once did.     

3. High Network Attrition. It is estimated that within 2-3 years about 80% of reps in most MLM companies become inactive. The process of expanding a network is very inefficient, if not impossible, if you're losing 80% of your network every 2-3 years. If you can find an MLM opportunity that guarantees a monthly profit after sponsoring as few as 2 others, with an opportunity for sponsoring many others for much higher income, with little additional effort, i.e. using internet marketing, such opportunities typically enjoy much lower attrition (higher retention) than most MLM companies.

4. Ground Floor Opportunity Over. It is estimated that over 80% of the people who become distributors for MLM companies do so after the MLM companies have become household names, but long after the ground floor opportunity (GFO) is over. The GFO is the initial period, typically within the first 12-24 months after the MLM launch, when demand for the products is high, and supply of comparable products is low. But typically after a few years, other competitors, including mainstream retailers or other MLM companies, enter the market, offer similar products, and drive prices lower. As supply increases, demand decreases, and the GFO is over. Motivating and retaining new reps is more difficult after a GFO period has ended because the large numbers of new reps discover that consistently making profits is a much more difficult proposition than was promised during the recruitment process. The 20% of MLM distributors who join DURING the GFO period generally have solid opportunities to earn substantial profits. Almost without exception, those who become network marketing millionaires do so by enrolling during the GFO period. Generally, the sooner they join before the GFO period ends, the higher their chances of achieving financial freedom.

5. Pyramid Schemes. While the majority of MLM companies are legitimate business opportunities, not pyramid schemes, a few unscrupulous individuals have unfortunately marketed illegal pyramid schemes as MLM businesses. This has lead to some of the negative reputation of MLM. It is important for a person considering enrolling with an MLM opportunity to know what signs to look for in ascertaining whether the opportunity is a legitimate business. The key distinctions with illegal pyramid schemes is that the product or service being sold has no real value to anyone and the entire focus is on paying commissions simply for signing up new distributors and not for the purchase of quality products with true, intrinsic value. If actual product or value-added service is involved, and the buyer benefits in some way from the product or service, and there is no contractual requirement to recruit others, and if legal protections for the distributors are included in the distributor contracts in the event the company fails to fulfill its obligations, then the opportunity is generally not a pyramid scheme, but a legitimate network marketing business.  

The RaPower3 6 tier commission opportunity and the 7 Figure Legacy revenue sharing program do NOT exhibit any of the 5 warning signs outlined here.

We recommend that you should generally avoid  participating with any MLM opportunity that exhibits more than one of these warning signs.


April 1, 2010