![\"Marketers](\"https:\/\/content.artofmanliness.com\/uploads\/2018\/06\/MLM-Header-1.jpg\")
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A college buddy you haven\u2019t heard from in years gives you a call to see if you want to do lunch. Heck yeah you would! Awesome that he thought to reach out to you.<\/em><\/p>\n So you meet your buddy at a burger joint. You reminisce about old times and play catch-up. You\u2019re having a real good time. But then he mentions this nutrition company he\u2019s been selling for lately. He says he\u2019s just getting started, but there\u2019s a lot of income potential. In fact, he knows a guy who has paid off his mortgage working for this company. He thinks you\u2019d be a perfect distributor for it because you lift weights and you\u2019re driven. <\/em><\/p>\n What began as a pleasant evening catching up with an old friend suddenly feels awkward. You feel . . . used. <\/em><\/p>\n You\u2019ve probably encountered a situation like this. Or at least know someone who has. If you haven\u2019t experienced this kind of in-person pitch, you\u2019ve likely seen old high school friends or an aunt on Facebook or Instagram posting about an amazing business opportunity that involves selling eyelashes or health supplements or essential oils for something that can be described as a \u201cmulti-level marketing company.\u201d<\/p>\n While there are plenty of men who join MLMs, 75% of all participants are women. But that doesn\u2019t mean that if you\u2019re a dude you don\u2019t need to understand exactly how MLMs work, as there’s a chance your wife will one day come to you with the idea of joining one. Hopefully you\u2019ll have a conversation together about it, and hopefully, using the points we lay out below, you\u2019ll be able to make the case that it\u2019s a bad idea for her, and for your family.<\/p>\n Because despite the growing ubiquity of glowing testimonials and aspirational lifestyle posts surrounding multi-level marketing, the reality of MLMs is quite different than it seems. If you, or your wife, is interested in joining one, you owe it to yourself to understand this other, darker, considerably bleaker, side of things.<\/p>\n There are lots of definitions of what multi-level marketing is and it gets called different things. Consequently, it can sometimes be hard to tell, at least initially, whether a company fits that label or not. <\/p>\n First, here are the different things you\u2019ll hear multi-level marketing called: network marketing (most common), direct sales, affiliate marketing, referral marketing, dual-level marketing, consumer-direct marketing, home-based business franchising, home-based business opportunity, and inline marketing.<\/p>\n If you hear someone talk about a business model using one of the above terms, there\u2019s a good chance it\u2019s a multi-level marketing business. But understand this: just because a business uses one of the above terms, DOES NOT automatically mean it\u2019s an MLM. As we\u2019ll see later on, a business that uses direct sales to get products or services to the consumer might not be an MLM.<\/p>\n Okay, so we know what terms might be used to talk about a business that uses multi-level marketing. How exactly does this business model work?<\/p>\n Here\u2019s the definition the Federal Trade Commission has given for MLMs:<\/p>\n “Multi-level marketing is one form of direct selling, and refers to a business model in which a company distributes products through a network of distributors who earn income from their own retail sales of the product and from retail sales made by the distributors\u2019 direct and indirect recruits. Because they earn a commission from the sales their recruits make, each member in the MLM network has an incentive to continue recruiting additional sales representatives into their ‘downlines.'”<\/p>\n This is an okay definition, but to really understand what an MLM is, you have to see it \u201cin action.\u201d Below I walk you through the functioning of a hypothetical MLM called Company A. While every MLM differs slightly in how they work, they all share this same basic format.<\/p>\n Company A sells weight loss shakes. Instead of putting them on store shelves or selling them direct to consumers through an online store, they recruit sales people called \u201cdistributors\u201d to sell the shakes for them.<\/p>\n To become a distributor, a person needs to buy a distributor starter pack from Company A. It costs $75 and contains brochures about the product and what distributors can do to make money with the company. It also contains a few samples of the product that the potential distributor can give away in order to help sell the product.<\/p>\n Jim is approached by a friend who is already a distributor for Company A to become a distributor as well. Jim\u2019s friend tells him it\u2019s an \u201camazing business opportunity\u201d and that he\u2019s only telling Jim about this because he\u2019s the kind of entrepreneurial guy who could succeed with it. The friend shares how other distributors have been able to make enough money selling shakes that they\u2019ve paid off student debt and bought a second car. He says very little about the product itself except that it\u2019s fantastic and practically sells itself.<\/p>\n Jim fills out the application to become a distributor for Company A and buys the $75 starter kit. Jim can now buy Company A\u2019s shakes at a 25% discount and sell them to friends and family at the full retail price and keep the profit. This is pretty cool.<\/p>\n But then Jim sees something in the starter brochure: Instead of just buying the amount of shakes that he needs to fulfill the demand for them among his friends and family, Company A requires<\/u><\/em><\/strong> Jim to buy $100 worth of shakes each month to maintain his status as a distributor. The company says you need to do this so you have enough inventory to sell to people and so you yourself can use the product.<\/p>\n Jim gets signed up for an auto delivery system where his credit card is charged a $100 a month and he\u2019s sent product every month. He\u2019s kind of worried about this $100 recurring charge, but the shakes will sell themselves, right? He\u2019ll be able to make his money back. Definitely.<\/p>\n Jim starts pitching the shakes to his friends and family members. He gets a sale (from his mom), but that\u2019s it. Most people are just plain uninterested. Selling these shakes is a lot harder than he thought it\u2019d be.<\/p>\n Jim\u2019s friend who recruited him into the company starts telling Jim that the way you really <\/em>start making money with Company A is recruiting other people beneath you to sell shakes. \u201cWhen you sign someone up,\u201d explains Jim\u2019s friend, \u201cyou will start getting a 10% commission on the product your recruit is required to buy from Company A in order to qualify as a distributor. If you can get 3 people to sign up, it means you would be earning 10% commission on all the product those 3 recruits are required to buy, plus whatever they purchase beyond that minimum.”<\/p>\n Jim thinks to himself, \u201cHmm, this means this friend of mine is making 10% on the shakes I\u2019m required to buy from Company A. That\u2019s interesting.\u201d<\/p>\n The friend continues, \u201cIt gets better! If those 3 recruits each recruit 3 people themselves, you\u2019ll earn 5% commission on the product they buy from the company as well. You\u2019ll be a \u2018Gold Star\u2019 level distributor at this point and you\u2019ll be able to buy product from the company at a 30% discount. To maintain this status, your group of 12 recruits beneath you need to collectively buy $1,200 worth of product each month from the company.\u201d<\/p>\n \u201cAnd if those 12 recruits each recruit 3 distributors, you\u2019ll earn 5% on the product they\u2019re required to buy from the company. At this point, you\u2019ll be a \u2018Double Gold Star\u2019 distributor. These recruits and sub-recruits are called your \u2018downline.\u2019 The bigger your downline, the more passive income you can make. Talk about an amazing opportunity!\u201d<\/p>\nWhat is Multi-Level Marketing?<\/h3>\n