I hate multi-level marketing (MLM) programs, and I've never been introduced to one that changed my mind. Most MLM companies are a perfect microcosm of the anti-1% sentiment they pretend to fight against.
MLM companies sell the idea of being a business owner, creating a life of freedom, and leaving the corporate 9-5 job that's only making your boss rich and not you. But in reality, the only ones making money in an MLM are the 1% on top. (Hey, just like real life!)
MLMs sell the dream of building an empire and being your own boss, when in reality, you're just as much a cog in an MLM company as you are at your job — but at least the latter pays a salary and offers unemployment benefits.
I hate MLM companies and would never recommend that a business start a multi-level marketing program.
MLM is never the right answer for legitimate companies with long term aspirations and products/services that can stand on their own two legs.
I believe that success is something you build together with other people, and not on the backs of them. And MLM companies do the latter.
Affiliate programs often get incorrectly categorized with multi-level-marketing (MLM) companies, or even worse, pyramid schemes — but they are far from similar. If you're unfamiliar with the differences, read my other post before continuing.
In this post I'm going to break down my reasons why MLM programs are never the right answer for your business. I'll divide this post between the perspectives of your customers, affiliates, and your company.
MLMs are terrible for CUSTOMER experience.
As a customer, I have one role in your business — to buy your products or services.
If I'm happy, I'll buy more of your products. If you keep me happy, I'll become a lifelong customer.
If I'm really happy, and I'm the type of person to talk about my feelings towards products and services, I may leave positive reviews or recommend that my friends and family check you out.
That's where my role as a customer ends, and that's where your expectations of me should end with it.
But that's not where it ends with MLMs…
Now I'm being asked to sell your products by the guy who sold them to me.
I don't want to sell your products though. I'm happy just purchasing them.
I also already have a job and am not looking for another one, or even a side hustle.
Wait, but I can receive a discount on the products that I'm already buying if I become a reseller? 25% off? Wow that's pretty good.
Plus if I sell a few on the side, I earn a 25% commission on what I sell?
And if I recruit other people to sell, I make 10-15% commission on what they sell?
Wait a minute… so you're earning 25% on all my sales, and someone else is earning 25% above you, and someone else is earning 10-15% above them, and the company itself still needs some profit margin to wholesale the products to you…
So all this time, because of the commissions, I've been paying like a 500% markup?
How &#*$ing cheap are these products?
I was buying them because I thought they were the highest quality on the market. However it turns out that each jar I was paying $50 for only costs $2 to make!
Two things can happen from MLM sales…
#1 Customers realize how cheap your products are.
After all, they have to be cheap in order to offer that many levels of commission tiers.
In my story above, it becomes incredibly clear very quickly to the customer that there's a lot of money to be made selling these products — and that's not something I'd want my customers thinking about.
#2 Customers become annoyed at your salespeople's attempts to recruit them.
People in general have a hard time saying no, and also don't know when to stop. This isn't a winning combination for your company. Your salespeople/recruiters don't know when to stop asking, but your customers don't like to say no to things — so they just stop coming.
Maybe I can save 5% on my annual cost of shampoo buying from your company, but at least when I shop at Target, the manager doesn't ask me to be a cashier each time I visit.
Customers shouldn't be spoken to like they work for you
MLM companies want to turn customers into salespeople — that's how they grow. So inevitably they end up communicating with customers like they are salespeople. That lack of distinction ruins the customer experience.
MLMs are terrible for AFFILIATES.
Let's say I'm a salesperson (ie: affiliate) for your company. I love your products and have carved out a nice income selling them to my community.
I'm the “go to guy” for these type of products. I've learned everything about them and have become an expert in the industry. My customers know that about me. They respect my integrity, knowledge, and the fact that I make a living doing this, so they refer me new customers.
They don't send me new customers because they earn a commission (although maybe I personally choose to send them a thank you gift).
They refer their friends and family to me because they know that I'm going to take care of them.
So why would I want my customers selling the same products as me in my own community???
An MLM recruiter would tell you that you can actually make MORE money with a team underneath you. And that even though you're earning a smaller commission on your sub-affiliates sales, you can scale your team and eventually make more.
That's a bunch of BS though.
Any good salesperson can tell you that there's a finite amount of business within a territory. For that reason, they want exclusive ownership of that territory. The last thing any good salesperson wants is more salespeople playing on their home field, taking their sales, and possibly tarnishing the reputation of the sport.
If you look at the “opportunities model” of any MLM program, they often show how scalable it is to build a team underneath you. However, what the MLM companies intentionally neglect to showcase in their pitch, is that most people have a small sphere of influence that overlaps with that of their friends, family, and co-workers.
Does anyone remember when Toby from The Office (US) started selling girl scout cookies at the Dunder Mifflin Scranton branch? Darryl had been selling girl scout cookies in that office for years and considered it his turf. And that's just two people. What if Jim and Pam started selling girl scout cookies too? Kevin can't support them all with his cookie addiction.
The point I'm making is that I don't want my friends, family, or co-workers selling the same thing as me. I'd rather them support my small business endeavours by sending me customers. There's not enough room for all of us in this town to sell cookies.
The other thing that MLM companies intentionally misrepresent in their models is literally how many people there are in the world who could potentially be customers. If every affiliate has 7 affiliates underneath them, who then recruit 7 affiliates themselves, it only takes 11 tiers of affiliates before we've run out of people in the world to recruit. And then who's left to sell to?
Spelled out with numbers…
7 Level One Affiliates = 7 Humans
Each recruit 7 Level Two Affiliates = 49 Humans
Who each recruit 7 Level Three Affiliates = 343 Humans
Who each recruit 7 Level Four Affiliates = 2,401 Humans
Who each recruit 7 Level Five Affiliates = 16,807 Humans
Who then recruit 7 Level Six Affiliates = 117,649 Humans
Who then recruit 7 Level Seven Affiliates = 823,543 Humans
Who then recruit 7 Level Eight Affiliates = 5,764,801 Humans
Who then recruit 7 Level Nine Affiliates = 40,353,607 Humans
Who then recruit 7 Level Ten Affiliates = 282,475,249 Humans
Who then recruit 7 Level Eleven Affiliates = 1,977,326,743 Humans
Who then recruit 7 Level Twelve Affiliates = 13,841,287,201 Humans
And… we're out of humans!
As a more realistic example though, I live in a town of 30,000 people. There's only one yogurt shop, one Indian restaurant, and one Verizon Wireless store, because that's all that this town can support.
If that's the case for those businesses, do I really want one, two, or seven other people selling the same thing as me in my town?
“The Internet offers a much larger territory though.”
In my examples above, I've used a single office and a small town to represent potential spheres of influence. However, I know that the Internet offers a much larger territory to go after (as do the MLM companies), but at some point you're facing the exact same issue as an affiliate.
How many search results appear on the first page of Google? How many of those results actually get clicks?
How many Facebook groups centered around XYZ product can the online world support?
How many people need to compete for keywords on a pay-per-click search before the cost per click gets too high to make an ROI?
Whatever the actual size of the audience, there's a point of saturation. Whether we're talking about a school, office, town, country, or globally — my attitude will always be the same — I don't want more people selling what I'm selling.
And that's why MLM programs are terrible for affiliates.
MLM programs are terrible for companies.
By now you've seen how MLMs offer a terrible customer experience and why they're bad for your salespeople/affiliates. Here's why they're bad for your company.
Walk into a grocery store in any city in America and take note in your mind of the first 10 people you walk past in the aisles. How many of those people would you want representing your business?
If you've worked hard to create amazing products and services and build a successful company, I imagine that you've paid close attention to your company image.
You've carefully crafted every Facebook and Instagram post to be on point with your brand and company mission.
Each new addition to your staff went through a vigorous interview process to ensure that they were a good fit with the team.
Every press mention you're company has ever received was hard earned
You've diligently monitored social media for any mentions of your company name or hashtag.
You've responded to each negative review personally to try and convert previously unhappy customers into happy customers for life.
Are you really ready to give up control of your company image over to a multi-leveled network of brand ambassadors? Because once you let that cat out of the bag…
While the same argument could be made about starting an affiliate program (which only has one commission tier), the crucial difference is that with an affiliate program, you retain control over who you allow into your program as affiliates.
The best affiliate programs don't let anyone join. They have an application process which involves an affiliate manager reviewing the applicant's online presence and plans for marketing the company.
MLM programs, on the contrary, typically let anyone join. Quality control typically goes out the window from day one. Get ready for those 10 people in the grocery store to become your brand ambassadors, because they're coming.)
Customers aren't your sales team.
Even with affiliate programs, I'm always preaching that (most) companies should not try to recruit their customers to become affiliates. Because what happens is you end up talking to your customers like business partners through your affiliate communications, instead of customers, and it can really sour the relationship. MLM programs are essentially that same dynamic on steroids.
But _______ is a great MLM program…
In response to this article, I'm probably going to receive messages about how I've got MLMs all wrong and that “______ is a great MLM program!”
However, you're wrong. They're not a “great MLM company” — because that's an oxymoron. There are no great MLM companies.
Don't get me wrong — I'd love to own a multi-level marketing company or one of the top 1% of affiliates for one — because those are the only people who actually make any money in an MLM. However it'll never happen because like I said, I prefer to create success with other people, and not on the backs of them.
Hopefully, as a business owner, you've now learned that multi-level marketing is not the right fit for your company. What might be the right fit for you is starting an Affiliate Program — which is very different. Learn more about starting an affiliate program through my Frequently Asked Questions.
If you're on the fence about whether you should start an affiliate program or would like more information about how they work, contact me for a free 30 minute telephone consultation. Even though I offer affiliate setup & management services, I'm never going to steer a company towards affiliate marketing if it's not the right fit. I learn a lot from the consultations and enjoy doing them, even when they don't lead to immediate business.