Is Multi-Level Marketing (MLM) the way to Financial Freedom?

You may have come across the term Multi-level Marketing or MLM. What exactly is MLM? According to wikipedia,

"Multi-level marketing businesses function by recruiting salespeople (also called Distributors, Independent Business Owners, IBOs, Franchise Owners, Sales Consultants, Beauty Consultants, Consultants, etc.) to sell a product and offer additional sales commissions based on the sales of people recruited into their downline, an organization of people that includes direct recruits, recruits' recruits, etc. This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager, but in some MLM programs, there can be seven or more levels of people receiving royalties from one person's sales."

The problem with MLMs is due to the fact that many MLMs are pyramid schemes or ponzi schemes, where one makes money from recruiting members to the scheme rather than commissions from selling the underlying product. Some examples of MLM include Amway, Herbal-life and so on.

One of the key questions that you should ask of any direct selling or MLM business model is what makes more money:

a) Selling the product
b) Recruiting people

If the system earns you more by doing b) then, it may sound dodgy.

Skepdic also has a good writeup on the dangers of MLM. Skepdic goes as far as to say that,

"The reason MLM schemes cannot succeed is because MLM marketing is, in essence, a legal pyramid scheme."

A close relative of mine was brain-washed by one of these MLMs in Singapore not too long ago. They used motivational seminar approach to get people pumped up about the whole business model and even pre-empted nay-sayers but telling her that her relatives, friends and colleagues would dissuade her from the MLM business and that they were ignorant, suspicious and jealous of her opportunities to success. Fortunately, she eventually realised how difficult it was to succeed in an MLM business and quit while losing only a couple of hundred dollars. It was an expensive lesson.

If you are considering MLM, think carefully and distinguish between genuine MLMs vs ponzi and pyramid schemes.

Be financially aware and prosper.