One of the things I've noticed in recent years is the proliferation of the so-called "multi-level" marketing plans going the rounds today. In 1976, the same plans were simply called "chain letter schemes." Today, their promoters are attempting to give them a certain respectability by calling them MLM plans, and are actually giving real MLM operators a bad name in the process.
This is not to say all the MLM plans being advertised today are chain letter schemes. Not so! There are many good ones that are making a lot of money, not only for their originators, but for their distributors as well. But it can be very hard to tell the difference without knowing what to look for. Having been involved with several (not all at once) very good ones, and having made some good money from each, I can testify to that from first-hand knowledge. I'm sure there are others just as good. But, not having had experience with them, I can't tell you about them. What I can do is give you some things to look for in judging for yourself if a given plan is or is not a good one.
- OBVIOUS PROSPERITY: One of the first things I look for when someone approaches me about a MLM plan is this: does the company, through its publications, printed matter and product look like it is making money? If not, get away, fast! Most of the mailings I receive from promoters of the various plans making the rounds today feature badly printed or copied circulars, most of which have had their originals done on a typewriter by someone who doesn't know how to type and who usually has only a passing acquaintance with the English language. They literally shout: small time! Others are indeed typeset and some even look good -- in their original form -- but having gone through many generations of being copied and copied again, they still manage to make them look trashy. If they can't even afford to have professional-looking literature, they might just not be there when time comes to pay you your volume bonus. A look at any of the literature from the major network marketing companies such as Amway, Ams/Oil or Neways will tell you they are making money -- at least enough to be able to put out good-looking literature.
- REAL (CONSUMABLE) PRODUCTS: In a thinly-disguised chain letter scheme, the emphasis is on outlandish profit claims. The product (if any) is downplayed because it isn't really important, since most of the money is made by sponsoring ever more suck... er, uhh... people. Regular sales volume is not emphasized because sponsoring is more important. The product is only there as a smoke screen to help fool people into believing it to be a legitimate merchandising plan. They don't care if you ever sell a product. The Ams/Oil, Amway, Shaklee and Neways programs each have an excellent, and innovative line of consumable products -- and each company requires a certain minimum of retail sales activity on the part of dealers before volume bonuses will be paid. If you're considering a plan now, look and see if it involves high quality, consumable products and requires retail sales. If it doesn't, forget it.
- WELL KNOWN PRINCIPALS: The principals of all the companies I mention here are well known to their distributors, and to a large segment of the retail buying public as well. All appear regularly at sales meetings that can pull as many as six thousand people or more. They are celebrities to their dealers. (I am personally acquainted with Forrest Shaklee,Jr., as he is a life member of the Eden-Hayward chapter of the international barber shop quartet society to which I used to belong.)
- ALL PROFITS ARE MADE BY VOLUME SALES: In a pyramid scheme, which is what most chain letter operations are, most of the money is made through getting other people into the program, rather than on the sales volume of all dealers. In a properly run MLM company, it is just the opposite: no profit is made just by signing someone up. If a company you're considering promises you a fee just for signing up a new participant, walk -- no, run away from them.
- WHO MAKES THEIR PRODUCTS? I'm not saying that any company that doesn't make its own products is a rip-off. I was an international sales leader with American Unifax, Inc., in 1968 and 1969, and their products were mostly made by Franklin Carbon Company (To their specifications, and only for them). What I am saying is that if you can't find out whether or not they make their own products -- or if they are very secretive about whether or not they do make their own, you'd better look at their other positive factors carefully to see if you want to take a chance on them.
- BREAKTHROUGH PRODUCTS: Most of the companies I mentioned before not only make their own products for the most part. Those products are usually what I refer to as "breakthrough" products. Products that obsolete industries by doing their jobs so much better than the competition that the competition's products become obsolete.
- NO UNENDING CHAIN: In proper multi-level merchandising, there is no unending chain of profit for dealers. In most legitimate MLM companies, there is a definite limit on the number of levels to which a dealer will be paid on the performance of his or her individually sponsored dealers and continues with a much smaller percentage on groups of dealers who have themselves risen in volume sales. In fact, with these companies, when a dealer reaches a certain volume sales level, he/she breaks off from his/her sponsor and deals direct with the company from then on or deals direct from day one while the sponsor gets his or her profit from volume overrides. Their sponsor continues to get a (smaller) percentage of their sales volume, but no longer has to supply their products or worry about their volume bonus payments or training and "hand-holding.". If the sponsor gets enough of these people in his/her group, he/she can actually retire on a large income.
- THE SLIDING SCALE: Income for successful sponsors in a proper MLM company comes from having all the sales volume generated by themselves and all their dealers counted as a single monthly order, even though it usually comes in bits and pieces. A "sliding percentage scale" of payments to sponsors based on that total monthly volume will usually keep those who sponsor many people and who do lots of sales volume in a higher percentage bracket than those they sponsored. Since a Direct Jobber or Direct Distributor or Supervisor (whatever they call their "key" distributor) may be in a 25%-40% bracket and a newer dealer in a 3%-12% bracket (having sold less), he or she keeps the difference, which can amount to a lot of money if he/she has a lot of distributors contributing to the purchase volume.
When a distributor in a group becomes a Direct Jobber, Direct Distributor or Supervisor (or whatever) and attains the same percentage bracket as his/her sponsor, the he/she then breaks off and the sponsor is given an additional percentage (not out of his distributor's money, but direct from the company) of the retail profit on the sales of the new DJ, DD or Supervisor. If you get enough of these people in your group, that extra percentage can amount to big money. I know some people in that position who earn as much as $500,000 a year. I know some of these people personally. I've known them for years, and the evidence of their financial independence is apparent whenever I visit them.
WHAT IS A PYRAMID (PONZI) SCHEME? The pyramid scheme was used years ago by a man whose name was Ponzi to bilk thousands of elderly people out of their money. He probably didn't originate it, but the name Ponzi has come to be synonymous with the pyramid scheme. Here's what to look for:
- NO REAL PRODUCTS: As a general rule, pyramid schemes do not involve real products. Usually, the only product involved is sponsorship. To make money in a pyramid scheme after coming up with your payment to get in, you have to find other suckers willing to pay you to get in on a supposed moneymaking plan.
- HEAD-HUNTING SCHEMES: Where money is made in pyramid schemes is from the percentage of the "head-hunting: fee that is paid to each member of a new participant's upline on each sucker who comes in. This continues until saturation is reached or the authorities come down on the promoters, whichever comes first. That's when the most recent participants lose their investment.
- CHAIN LETTERS AND CHAIN SCHEMES: The chain letter is just another form of the pyramid. In a chain letter, you pay a fee to each of several names on a list, then remove one and replace it with yours. Then you mail out lots of the same letters. Saturation would also apply to these, if any of them ever got to the point where anyone ever really made money on them. Of course, like all pyramid schemes, they're illegal. "Head-hunting:" That's what these schemes are. The only thing they're concerned with is how many people they can "bring into the program."
- WHAT IF IT HAS A PRODUCT? Some pyramid schemes actually do have a product. Usually something common that you could buy elsewhere for less money. Sometimes it is a cheap, easily made product such as is used in the "Four Report Scam" where you're required to buy one report from each of four names on a list, then put your name on the list while removing someone else's. Rarely is it a consumable product. These products are usually there only in an effort to snag those who have been told that pyramid schemes never have products.
- GET IN EARLY! If the promoters of any program urge you to "...get in now, while it's new!" It's a pyramid. Real network marketing programs stick around for many years and just continue to grow because they involve the sales of consumable products that are used up and reordered, over and over. Pyramids and chain schemes need to get people into their clutches early before the pyramid topples, so the early participants can get the profits that come from the payments made by later entrants. The later participants are the ones who lose their money when the scheme goes belly-up, as the promoters knew it would. It has to; that's the nature of the beast. But the promoters don't care. They've got theirs, and they'll soon be back in business with another scam, continuing to bilk people until saturation sets in again and they flee with the money, only to turn up again somewhere else under a different name, with yet another (same kind of) scam. I wish I had a nickel for every letter I get where someone touts the "newness" of the scheme they're promoting as a "benefit.". One recent one was ecstatic about the fact his promotion was "...only a week old!" Another trend I see in my mail is the "Pre-Launch" mailings where you are offered an opportunity to get in before the program is even launched! That's carrying the newness to extremes.
- GET IN ON THE "GROUND FLOOR!" That's just another signal that whatever they are promoting is a pyramid. Reputable network marketing plans go on and on, making money for their participants. Amway's sales volume today is in the hundreds of millions of dollars. Shaklee and Ams/Oil likewise. Neways just went MLM not too many years ago and is growing like gang-busters.
- OUTLANDISH PROFIT CLAIMS: One of the hallmarks of the pyramid scheme is that the promoters talk about nothing but their outlandish profit claims without ever mentioning the product. Sure -- reputable network marketers talk about profits to be made, too. But you'll always notice that the first thing they talk about is their "...wonderful products." The product is king with real network marketing companies. Their aim is not to recruit ever more people -- just enough to sell a lot of product.
- PAYING YOUR DUES: Some programs tell you all you have to do is send in your money (your ante) and you don't have to do anything else. Lots of people buy this because they want something for nothing. "There ain't no such thing as a free lunch." Anything worthwhile is worth some effort on your part. You'll never make big bucks without some work. Bear that in mind when you read those promotions.
NETWORK (MLM) MARKETING IS REAL! With all I've said above, you might think all network (MLM) marketing programs are shady (if you didn't read carefully). Nothing could be further from the truth. Network marketing is now taught in college as a viable marketing method. More and more companies, some that have been around for years, are entering the network marketing business. Two notable ones are Rexall Drugs and Watkins Products. Many network marketing companies are listed on the New York Stock Exchange and are Fortune 500 companies. Everyone has heard of Avon, the largest cosmetics company in the world, with sales in excess of $3 billion dollars yearly. Amway and Shaklee rank with the likes of IBM and Mobil Oil with U. S. sales of about $2 billion. Even insurance companies are joining the market and are using network marketing to outsell many of the (formerly) largest insurance companies in the nation. NEWAYS is growing by leaps and bounds with a product line that first of all helps you to get all the necessary minerals your body needs and is not getting from your food. It also gives you a source for cosmetics and other things you put in and on your body that do not contain the caustic chemicals usually found in the products you buy at the drug store. Colgate Palmolive has its own MLM subsidiary in the form of Princess House and the Gillette Company has Jafra Cosmetics. Mary Kay Cosmetics became a NYSE company, then later bought back enough stock from its profits to go private again.
Network (MLM) marketing is a $20 billion dollar plus industry and is growing at a rate of 40% annually. Experts say that 60% to 70% of all North American households have made purchases of goods and services from network marketers. Network marketing has truly changed the way people buy and sell and it's winning converts every day, imitators notwithstanding. The IRS even publishes booklets specifically for network marketers.
There isn't another industry that can offer so much to so many for such a small investment. Thousands and thousands of people have started with laughably small investments and two or three years later were enjoying a monthly income in excess of $35,000 to $40,000, with many making more than $100,000 annually. Every year, more and more people from all walks of life are enjoying financial security through network marketing. Network marketing is truly a viable alternative to conventional retailing and is a way for "the little guy" to get a piece of the action.
WORD OF MOUTH Network marketing companies don't spend hundreds of millions of dollars in advertising. They take this money and "add it to the pie" for their distributors in the form of bigger commissions on sales of their products. Their strength is the "word-of-mouth" factor, utilizing individuals as distributors and the "self-duplicating" factor of one person personally recommending the company and its products to others and sponsoring new distributors.
True network marketing is not head-hunting. No one makes money by simply recruiting someone. They make their money only when products are sold, through group purchase, where all the product purchases made by each distributor and his or her downline are grouped over a specific period (usually a month) and product discounts are given to each on a sliding scale, based on the amount he or she purchased, with those higher in the upline keeping the difference between the percentage due those who bought less and the higher percentage the sliding scale commission schedule pays them.
Since I'm sure the reason you asked for this report is that you're considering the network marketing business and don't want to get taken by one of the scams, you've done the right thing. Now you can look at the mailings you'll receive and the Internet solicitations with new eyes armed, as you now are, with the information that allows you to tell the difference between a pyramid or chain scheme and a true network (MLM) marketing program.
DON'T SPREAD YOURSELF TOO THIN Just remember: when you select the one program you believe will help you attain financial independence, stick with it. Don't become a MLM Junkie as so many people do. Any business that will make you any amount of money requires a certain amount of concentration and dedication. You can't do that if you're involved in many different programs. Furthermore, you can't expect the people you sponsor to concentrate their efforts sufficiently to be able to make you all some money if you tell them, by your own example in joining many programs, that you're not even sure the one you're promoting is the one. Look over the material sent you by the person from whom you got this report and judge for yourself its merits. Network marketing is one of the best things to happen to the little guy in my memory. It offers him the opportunity to become the big guy when it comes to profits without having to mortgage the house to get things started. Armed with the information in this report, you should now be able to make an informed decision. A decision that could change your life for the better. Don't just sit there -- do something!
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