When MLMs Go Bad

There is no such thing as a totally fair MLM. The person at the bottom of the line always misses out. That's not to say they don't have their place in the web marketing industry, people just need to understand what that place is.

All too often, MLM's are used as the purpose of a program, rather than an added benefit.

Allow me to back-track. Definition first, then application.

When I first discovered web marketing programs, I kept seeing the initials MLM, with no clue as to what the letters stood for. In fact it was weeks before I eventually discovered the term "multi-level marketing".

Not that I was any the wiser. Describing a typical MLM is like trying to describe a typical job. There are so many different uses for the concept that trying to break it down to a few words can never really do it justice. There are many different applications of MLM's. Some useful, some useless. Some legal, some illegal.

The basic principle is that the marketing efforts of one person benefit more than the individual.

A real-world example would be a wholesaler selling large qualities of DVD's to resellers. The wholesaler buys the DVD's from the producers for Ł2 per DVD. He sells them to high-street retailers for Ł4 per DVD. The high-street retailer sells them to the consumer for Ł6 per DVD.

In each case the profit is Ł2, but the wholesaler wouldn't make his profit without the high street retailers, and the high street retailers wouldn't make their profit without the consumer.

The process from producers to consumers effectively shares out the cost of the distribution while ensuring a profit is made at each level.

Compare this with an affiliate program.

The owner (producer) wants to sell software X for Ł50. He sells his product to his members (wholesalers) at a full or reduced rate. The members then sell the product on to other members (also wholesalers) and also to ezine and website owners (high-street retailers), for the same price keeping between 30-50% percent of each sale. The ezine and website owners sell the product to their readers / viewers (consumers), also keeping 30-50 percent of each sale.

This process works well for the owner as the cost of marketing is shared among the members and the ezine / website owners. Everyone makes some money or receives the product they want.

The problems begin when the owner gets greedy.

Not satisfied with a simple affiliate program, they combine it with an MLM program. They reduce the percentage members make from each sale to 5-10%. They then announce that if you introduce a member to the program, you will make 5-10% of every sale they make in addition to your own sale.

If they recruit more members you will also earn 5-10% of every sale they make and so on, down several levels.

This has two effects:

1) Members stop selling the product and start selling the benefits of selling the product. The prospect of making money is usually easier to sell than the product itself which leads to vast number of members signing up. As you have to purchase the product to join, the owner is making a lot of money.

2) In the original affiliate program, members had to sell 2-3 products to break even. Now members have to sell between 10 and 20 products to break even. Since most can't manage this, the majority of members wind up with nothing but a discounted program they didn't really want in the first place. The only real winners are the owner, the members who managed to sell in large numbers and the people who bought the software because they really wanted it.

Take Note: The owner and members who profited, did so, not because they found satisfied customers, but because the promise of riches lured many members to waste their money on the product. These are the guru's who amass their wealth, not dishonestly, but unethically and immorally.

These same people will also take your money in exchange for learning how to be successful in selling these programs. In making a lot of money of the backs of people who should know better, but sadly don't.

This is why MLM's are unfair. This is when MLM's go bad.

But it doesn't have to be this way.

The example of Software X wouldn't be so unpleasant if individuals stopped selling a profit and started selling a product. If they promoted the MLM part of the program as a benefit, rather than the purpose, this would stop some people from buying the program under the illusion that they are assured of making vast amounts of money.

And play your part as well. Stop promoting unrealistic promises of wealth and start promoting promises of a great product. Before you resell it, try it out and make sure it works and is actually worth buying.

And when you assess a program that features MLM. Ask it two questions.

1) Does the MLM have a product? Software, eBooks, services, anything that people can GENUINELY benefit from. If the only product is making money from future members, leave it alone.

2) If a member doesn't recruit a single person, do they still benefit from the program? For example, do they, at the least, come away with a useful product or service. Traffic Exchanges are a good example as (providing the ratio is reasonable), a sole member can still earn a steady stream of traffic from surfing without having to recruit others.

If the program fails to successfully answer either of these two questions, move on. Ignore the promise of wealth.

Keep your dignity, keep your morals, keep your ethics and leave the guru's to continue the age-old tradition of making money off the backs of others who finish up out of pocket.

Dylan Campbell has been quietly making a living on the Internet since 2000. He has a unique, and often controversial, view of the industry.

Dylan Campbell writes exclusively for The Nettle Ezine.