Scam or Lucrative Business Option, The Truth about MLM Businesses

Wherever you turn, there’s always someone standing there ready to sell you “the next big thing”. Everyone nowadays seems to know at least one person who is involved in a MLM company (also known as network marketing or direct sales). Over the last ten years, multi-level marketing (MLM) companies have made a resurgence. So much so that lenders like eMerchantBroker have added them to their list of business types they provide merchant account services to. From makeup to cookware, the products that are sold in an MLM structure are seemingly endless.

Skeptical? Just how lucrative are MLM business? According to The Direct Selling Association, over 18 million American are involved in direct sales. $34 million was added to the economy in 2014 alone from MLM businesses, and the number continue to grow. Even so, many remain leery of MLM businesses because they fear a scam. Others simply don’t believe it’s possible to make any money doing it. So, what’s the truth?

The Statistics

Jon M Taylor, PhD conducted comprehensive research and analysis in an effort to determine how successful MLM business really are (or aren’t). This research was built upon an analysis of the compensation plans of over 400 various MLM companies. The results might surprise you:

  • A minimum of 50% of representatives drop-out within the first year of operation.
  • After five years of operation, a minimum of 90% of representatives have left the company.
  • By year 10, only those at or near the top have not dropped out; thus, it’s safe to say at least 95% of representatives have dropped out.

In stark contrast, according to the Small Business Administration (SBA) 2008 statistics:

  • 44% of small businesses survive at least four years.
  • 31% survive at least seven years.
  • 39% of businesses are profitable over the life of the small business.
  • Only 64% of small businesses fail in 10 years.

What’s Involved

Taylor went on to research just how much time and money it really takes to launch an effective business-building campaign. For the recruitment focused MLM, he estimates that $25,000 is the minimum amount required to cover expenses (incentives, products, phone, internet, giveaways, advertising, travel, etc.). If the MLM is product focused, the launch campaign and expenses can run anywhere from $1,000 per year or more. This amount includes: starter kit, marketing expenses, party-hosting expenses, office supplies, phone, Internet, travel, etc. He also noted that the likelihood of launching an MLM business with little or no upfront income is slim to none. As far as time invested, personal commitment and company requirements will dictate this figure.

Lucrative Opportunity, or Doomed to Failure?

Upon reading this information, you might conclude that running an MLM businesses is far from profitable. But Taylor’s report also revealed that, while large sums are required for launch, the investment in an MLM is small compared to a traditional small business. That fact also makes it much easier to quit an MLM than a traditional small business, since the start-up investment is easier to walk away from. In addition, many people who start an MLM make many mistakes. They fail to educate themselves on the company and product and rely on others (their sponsor) to provide information.

According to an article by INC.com, the median income for an MLM rep is around $2,400 per year. However, there are the rare success stories of people making $300,000 per year. Through hard work and commitment, it is possible to make a very profitable MLM business. The reality is that only a tiny percentage of representatives realize the high earnings many MLM advertisements promise. It all comes down to which MLM company you choose, and how much time and money you are willing and able to invest.