Crash course in MLM evaluation

I DON’T think it is my imagination, but there appears to be a rash of multi-level marketing (MLM) opportunities surfacing in Perth.

The variety of products sold in this fashion range from cosmetics through to websites and all things in between. Website MLM is undergoing some difficult times in America and this has had an effect on the local players in that market. But, leaving aside the problems that have beset individual programs, it appears that the industry has suffered from the actions of a few unscrupulous operators in the past.

There have been well publicised MLMs that have gone the way of all flesh and disappeared into the ether, somewhat unceremoniously. Therefore what we need to see is some means by which we, the unsuspecting public, can evaluate the various programs that we come across in our daily travels. The Consumer Awareness Institute in America has, through Dr Jon Taylor, produced a document titled Twelve Tests for evaluating a Network Marketing Opportunity. I have reproduced these tests hereunder.

p The opportunity test. Were you approached primarily on the basis of the actual value and need for the products – or for the “opportunity”?

p The market reality test. All too often the claims of the promoters in regard to the colossal amount of money that you will make ignore the basic dynamics of demand and supply. Some of the projections rely on the demand for a product being extrapolated by a factor of four.

p The product test. A good question to ask is whether the products could be sold at the same level without a MLM distribution system.

p The compensation test. Can you, as a distributor, make a good income for the time you spend selling the products without recruiting a single person?

p The income disclosure test. MLM recruiters are prone to considerable hyperbole when they go into recruitment mode. When this happens, a good test is to ask for the average payout figures by percentiles from the company. This will give you an idea of the percentage of distributors in higher echelon of income earners from the product.

p The pay-to-play test. A number of MLMs are predicated upon your purchase of the products or sample kits and motivational tapes etc. Find out what it is actually going to cost you to undertake the program itself.

p The price test. Are the company’s prices low enough to allow a reasonable mark up for resale?

p The golden rule test. When you were approached to join this business how did you feel? Was there a sense of exploitation? Are you prepared to do the same to your friends and relatives?

p The time freedom test. Recruiters often regale you with stories of their top distributors who no longer have to work and the cheques continuing to roll in. Ask them for a list of their upline and downline distributors. Contact them and ask them how they achieved “time freedom”.

p The honesty test. Has the recruiter been honest to you? If not, do you want to deal with such a person?

p The credibility test: Recruiters often use credible figures as their sales pitch. For example, one MLM shows you a statement attributed to Donald Trump, supposedly on the David Letterman Show, where he is alleged to have said that if he lost everything he would turn to multi-level marketing arrangements. This quote is apparently entirely concocted. He made reference to going into the property market but said nothing about the MLM opportunities. Credibility links can be deceptive.

p The support test: Does the company have the infrastructure to handle the administrative matters that may be required to support a large and well-spread workforce?

There may be MLMs that satisfy these tests. I must say that, in the many years of looking at these products, I have not come across one that satisfies these tests fully.

There is yet to be invented a business that does not require your hard work and input. Any claims made by the MLMs that their particular business is different are hard to accept. Forearmed with these tests, you should be able to fully evaluate the MLMs and come to a conclusion as to whether you wish to be involved or whether you still wish to maintain a healthy relationship with your friends and relatives.

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