Franchises and Multi-Level Marketing 10

Is there a limit to how big a downline can get?

Yes. Different MLM companies set different rules about how many levels deep distributors will be paid. Some key the number of levels to the sales volume; others set the number of levels some other way. In addition many MLMs develop some kind of procedures (usually based on sales volume) that lets them break away or go direct—in other words, split off from the parent distributor chain and operate as the head of their own chain.

Getting paid for not working sounds too good to be true. Is it?

Ideally, that top-level distributor is also selling products as well as getting commissions from his or her downline. They are also responsible for providing training and support services for the downline. Unfortunately, things don't always work that way. In some MLM organizations new recruits are lured into joining (and buying products or sample cases) with promises of gaining financial independence and great wealth. All they will have to do to become financially secure, they are told, is to work a marketing plan that consists primarily of doing nothing but recruiting others to work the marketing plan. Steve Bretzke, a distributor for Watkins, an MLM company that sells household and personal care products, says that some distributors for MLM companies promise people they will soon be earning thousands of dollars a month in their MLM business. Since the cost of getting started is usually under $100, Bretzke says, "many people join before they have any idea what they have to do to succeed. Therefore, you see many dropouts." Before dropping out, some recruits find they drop hundreds or thousands of dollars into the business, spending money on things like sample products they buy for their own use, meeting fees, transportation costs, promotional literature or catalogs they give out to prospects, and promotional tapes and books.

Does anyone ever make money in MLM?

Yes. Like almost any other industry or business the amount of money that can be made is usually proportional to the effort, time, commitment, and planning that goes into building the business. Richard Suter, a CPA who specializes in taking start-up ventures public and who has done some work with MLM operations, says, "The ideal distributor is somebody who has the long view and the capital to back it up. They should have sales experience. Dealing with and overcoming rejection problems is the number one problem in all selling." Bretzke, who says he just broke even the first year he was involved in MLM, agrees that the long view is important. He says it takes distributors about a year of working 10 to 15 hours a week to be able to make an income of about $1,000 a month. Where the real money is, he says, is in residual income, which can take 3 to 5 years of concentrated effort to build.

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