Monday, September 27, 2010

Is Your MLM Waiving a Red Flag?

I have never been a fan of MLM.  I can remember when they were known as pyramid schemes.  Then they became multi-level marketing, then network marketing.  A wolf in sheep's clothing is still a wolf.

Many of the people I pay attention to used to frown upon MLM and now endorse it openly.  I wonder why?  In "these economic times" it's the business to be in, they say. Some of them have partnered with or have started their own MLM companies.

MLM uses legit terms and business practices to cover up the scheme. Words like direct selling, networking, leverage, and passive residual income.  They can help teach someone good skills needed to succeed in business but there are better ways to use those skills.

I came across the work of Dr. Jon M. Taylor.  He has the research that states that over 99% of people involved in MLM are not profitable.  He even has the tax returns to back it up.  I'm sure if you did a careful financial analysis you may find that your MLM business may be generating income but is it cash flow positive?  You can be going broke and don't know it.  You can check out Dr. Taylor's research on his site here.

On his site he has a free 48 page ebook that explains in details how to examine MLM's.  He even has an ongoing book series that is very interesting as well.  In one of his blog posts, he summarized his book.  The following are the 5 Red Flags you should be aware of when choosing to be involved in an MLM.

  1. Recruiting of participants is unlimited in a chain of empowered and motivated recruiters recruiting recruiters -ad infinitum
  2. Advancement in a hierarchy of multiple levels of "distributors" is achieved by recruitment rather than by appointment.
  3. "Pay to Play" requirements are satisfied by ongoing "incentivized purchases"
  4. Company pay out per ale for the person actually selling the product is less than the total of all the up;one participants, creating inadequate incentive to retail and excessive incentive to recruit- and an extreme concentration of income at the top.
  5. The Company pays commissions and/or bonuses to more than five levels of "distributors".
Check out the blog in full on his site here.  Be sure to download the pdf also.  The link is in the fist paragraph of the blog post.

 Be diligent with your decisions.  There are many alternatives to MLM.  In fact Dr. Taylor lists over 3700 of them on his site.  There is no quick and easy way.  You must not be afraid of good old hard work and elbow grease.  Don't fall for False Profits.

Thank you for reading.  Please comment and share.

"Building Wealth One Friend at a Time"

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