Are MLMs real businesses? An honest review

Multi-level marketing (MLM) is a form of direct selling in which independent agents “build and manage their own sales force by recruiting and training other independent agents.”1 Also known as Network Marketing, “commission is earned on the agent’s own sales revenue, as well as on the sales revenue of the sales-force recruited by the agent and his or her recruits, called downline.”2 MLM is like owning a retail business and being entitled to a percentage of the sales of someone else’s retail business. Although MLM is legal, it is unethical: You make a profit from the sales of agents in your downline who are risking a financial loss.

 

MLM is not a normal business enterprise.

If a person starts their own business, they take a financial risk by investing their own money and/or borrowing money from the bank. The bank may require the owner’s home (or other assets) as collateral if the business goes bankrupt. When you start your own business, you risk losing your savings and wealth. Even in a company with limited liability, the owners can lose their initial investment if the company goes bust. If you make a profit, you do so by risking a financial loss.

With MLM, you take a financial risk: You have to buy sample product, so that you can promote it and sell it. You also have to pay membership fees, training fees, and cover your own expenses. However, no one in MLM becomes successful by retailing it to customers for personal consumption. As MLM expert Robert L. Fitzpatrick points out, “The business is primarily a scheme to continuously enroll distributors and little product is ever retailed to consumers who are not also enrolled as distributors.”3 To achieve financial success in MLM, you must sign up as many distributors as possible. The individuals you sign up will purchase the product for their own consumption, try to sell it to other people, and sign up more distributors who will do the same. With MLM, you make money not only from the people you signed up, but also from the people they signed up, and you earn that money without taking any additional financial risk.

Consequently, MLM is not a real business

It is a money-making scheme. Independent agents make a profit from other people’s financial investment, risk-taking, and labour. In a normal business enterprise, the owner has a legal and moral right to the profits because they invested their own money in the company. The workers (who risk no money of their own) are paid for their labour; and the owner makes a profit by risking a financial loss. This is not the case with MLM. Independent agents take all of the financial risk: buying product for re-sale and paying various fees. They also do all the work of promoting and selling the product, while people above them receive a commission on their sales. Thus, MLM is a form of legalized theft. To receive a royalty on a product that you invented and own the legal rights to is fair and just. To receive a commission on a product that someone else bought and sold is morally and ethically wrong.

First seen on: https://christopherjohnlindsay.wordpress.com/2015/09/06/mlm/