The 12 Step Test to Evaluate Any MLM
October 11, 2007 | By Monika Mundell | 3 Comments »
When it comes to evaluating any MLM company prior to signing up, then it really pays to check them out thoroughly by following the guidelines below. They are mainly from a PDF book I have come across while doing my research and some portions have been rewritten for ease of navigation for you. You can see the original at the end of the article under Source.
When I think back at my time in MLM and my failure to do just this, I realize that the respectable company I was involved in actively borders on the line of being close to a pyramid scheme themselves. I have to say that I did pay the price and am now out to prevent others from doing the same.
The biggest mistake you can make when joining any MLM is to get pressured into hype! Don’t fall for it and take your time to do the research before. It really doesn’t matter whether it promises to be the best thing since sliced bread either! You want to be absolute certain that you are buying into the right company that helps you to step closer to your dreams of financial freedom.
THE OPPORTUNITY TEST
If people approached you with the means of selling you an opportunity only rather than got introduced to a valuable product that is needed by people, be wary as it might well be a pyramid scheme. Pyramids only focus on recruiting others, they don’t have a valid product to sell.
THE MARKET REALITY TEST
Start by finding out whether there are limits to growing your business with this particular MLM company. How many distributors are within your area already? And is the product fairly new with a big demand in the community, or has the market already been saturated years ago?
THE PRODUCT TEST
Reviewing the products and ask yourself the following questions: Are the products valuable enough without the MLM distribution system attached to them? If yes, how does the marketplace look for selling them?
Look at competition and whether there is any, lots of competition doesn’t necessarily mean bad, it could be a positive if the product is in very high demand. Also, does the company focus mainly on recruiting or do they promote their high quality product offering a money back guarantee?
Can all product claims (such as health claims) be backed up by reliable research? Are orders filled and shipped promptly?
And are manufacturing and expiration dates printed on consumable products?
THE COMPENSATION TEST
Can you make enough money compared to time invested by simply selling the products without having to recruit any members? Or is the commission on selling so low that you are forced to sponsor others into your team to make decent money?
Would distributors several levels above you—who had nothing to do with the sale—receive as much or more total payout per sale (including commissions and bonuses) from the company as you would get for selling the product or providing the service?
If the latter is the case, the emphasis is on income from a downline of distributors (that you would have to recruit), not on the sale of products. Even though such a MLM program may have escaped prosecution as a pyramid scheme, it may still be a de facto pyramid scheme (or PPS).
Your odds of success in such a program will not be favorable. While a few distributors at the top of the pyramid will be rewarded handsomely, as many as 99% (over 99.9% in some programs) of distributors beneath them will come away empty—most actually losing money, after subtracting expenses and product purchases. Also, in some programs, your quitting merely enhances the income of your upline—because income from your downline “rolls up” to those above you.
Don’t fall for the line that it takes months or even years for most businesses to show a profit and that if you just “work hard and hang in there” you will make lots of money in this MLM program. Be aware that in other comparable settings, sales distributors usually show a respectable income within a couple of months, or they turn to something else.
Ask distributors who have been with the company for two or three months if they are turning a respectable profit, after operating expenses and product purchases are subtracted. If not, they are only fattening the pockets of their upline.
THE INCOME DISCLOSURE TEST
If the MLM recruiter you are talking to touts to you massive income figures of top distributors, request some company disclosers regarding the average payout to distributors by percentiges from the highest to the lowest, so that you can determine your chances of success.
Ask for the net payout figure (after subtracting product purchases) for all distributors who ever signed up, including those who are no longer active. If they fail to provide such data, they are not providing the full information you need to make an upfront and informed decision.
Also, you will need to get an estimate of the operating expenses for building your distribution network. You can do this by obtaining information about necessary and recommended company tools as well as expected traveling expenses to events.Such costs could be spent on telephone, Internet, travel, samples, sales materials, office supplies, mailing costs, printing and duplication, and (when friends and family don’t respond) some advertising. Most distributors wind up spending far more money on products and operating expenses than they bring in.
The best source for expense information are no doubt ex-distributors, as current distributors are often in denial about their current total spending.
If less than 1% of all distributors earn the equivalent of a minimum wage for their time (after subtracting all expenses and MLM products purchased), you might want to consider a more profitable use of your money, time, and energy. (Some researchers estimate that for most MLM programs, less than 1% of distributors ever turn a profit.)
Another acid test of the profitability of an MLM distributorship is to ask the person recruiting you to show you his/her last year’s tax return. It has been found that it is extremely rare for network marketing participants to show a profit for their networking efforts on their annual tax returns.
THE “PAY TO PLAY” TEST
What are the expectation is for you to purchase products, services, training, etc., over a period of time, in order to be considered a serious participant. In other words, what will it cost you to “play the game?”
Don’t be fooled by a simple request for a small sign-up fee, soon to be followed by endless invitations for specials on purchases of samples or inventory, accelerating bonus levels for higher sales plateaus, paid seminars, and training sessions or retreats. This requirement (or strong suggestion) that you make large purchases of products over a period of time to qualify for increasing bonus levels or purchasing discounts is one sign of a product-based pyramid scheme. After months or years of fruitless effort and a garage full of products, some participants come to realize they have merely been paying into a pyramid scheme in the form of payments for unneededproducts.
THE PRICE TEST
How are the company’s wholesale prices? Are they low enough to allow a respectable profit when marked up
for resale? Or are retail prices so high that they must be sold at wholesale to achieve any volume? If products are priced at a premium to support a large network of distributors, then the premium portion of the price could be considered the pyramid portion. So if a MLM product sells for $40 and a comparable product would sell for $20 at a typical retail outlet, the $20 premium may be deemed the pyramid portion of the price and would flow to top distributors in typical pyramid fashion.
THE GOLDEN RULE TEST
How is your overall feeling about the way you were approached? Would you feel comfortable talking to your friends and family about these products? Many MLM companies focus on making the “proverbial list” and this could be the downfall not only to your business, but also to your relationships. Don’t get fooled into exploiting relationships for a monetary gain.
THE TIME FREEDOM TEST
Those with a pyramid mentality dream about being successful enough at recruiting a downline that will bring in enough money to support them so they won’t have to work themselves anymore, therefore giving them “time freedom.”
If a recruiter promises that by working hard for a brief time period you will never have to work again, ask what percent of their top distributors are no longer actively involved with the company—and never attend opportunity meetings.
Ask veteran distributors when they last took an extended vacation. Were they able to do so without significant losses for not tending their downlines? And did any of them quit or scale down without experiencing major financial losses?
Better yet, ask for a copy of the recruiter’s downline and upline. Contact distributors at several different levels to see if any have achieved “time freedom.” And if you know the spouse of any of the distributors, you might ask what problems the family has experienced due to MLM participation (intrusive phone calls, untimely visits to the home, and neglect of family and other duties by the distributor).
THE HONESTY TEST
Do you feel that the sponsor has been lying to you by attempting to recruit you? Is it possible to sell the products or the opportunity without making exaggerated product and income claims? It is beneficial to ask for validation of each of the claims made to you. You might save yourself a lot of hassles by doing this.
THE CREDIBILITY TEST
Is the person sponsoring you credible enough for you to trust them to follow through by signing up with them? Or do they refer heavily on their top recruiters by telling you all about their success. If your sponsor hasn’t made any money in this MLM company, how can he/she expect for you to believe that you can?
THE SUPPORT TEST
Does the company offer an adequate support infrastructure? Will your upline be there when you need them, or do they have a history of jumping ship when the next hot MLM deal comes along?
Are conferences and training programs, audio and video tapes, etc., free of charge (as is the case elsewhere for company sponsored programs), or are you expected to pay for them—as another revenue source for the company and upline?
Source: Partial Excerpts from Jon M. Taylor’s PDF
A word of note: once you use these steps you will probably find that most companies you are looking at will border closely to a pyramid in some ways. What matters for you is to follow your gut instinct and logical reason.
Good luck
Monika
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I disagree with this post.
I have done about 150 hours of reasearch and, although I do not think that this article is intentionally malicious, it is, in my opinion incorrect. I have not yet chosen a MLM company, that is the point of my research.
I always love the “odds of success” in MLM. They are about the same as most anything else. Diet, sports, real estate investing….
Imagine…you sold a fastfood franchise for two hundred bucks. Everything else was up to the buyer, but the system was in place. I think that ANY THINKING PERSON would agree that the success rate would be quite simular-this is probably the number one reason that they DO charge thousands!
I could say much more but really, everyone do not overrate the value of this post, it is low.