Multilevel Marketing (MLM): To Invest or Not to Invest?

Some days ago, an older friend of mine paid me a visit. While we were chatting over some bottles of beer, he spoke quite excitedly about a new multilevel marketing investment he had recently made to the tune of $2,000. I was dumbfounded, frankly. And, as expected, he asked me to join the basic level of the scheme for $200.

To my friend's request, I smiled thinly and asked that he gave me some time to do my own research. The findings of my research, as the reader would imagine, now form the basis of this article.

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What is Multilevel Marketing(MLM)?

Investopedia.com defines Multilevel Marketing as a strategy some direct sales companies use to encourage existing distributors to recruit new distributors who are paid a percentage of their recruits' sales. In simple terms, MLM is an organized marketing technique that aims to sell products to consumers by pyramidally recruiting distributors who are paid commissions to recruit more distributors.

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The Pros of Investing in an MLM Scheme

As already stated, MLMs have a pyramid structure that resembles a funnel. The early bird, as the popular saying goes, eats the worm. So, those at the top of the investment pyramid have the potential to become insanely rich. So, an MLM scheme can make you rich if you're able to get on the train and sit on top, or very close, to those on the apex of the pyramid. Only then can you be guaranteed of recovering your investment.

Not only that, involving in MLM can be a way to make extra income apart from your regular, everyday job. In a very difficult economy like we are presently, one might be tempted to get involved in a profitable MLM venture.

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The Cons of Investing in an MLM Scheme

Perhaps, the greatest risk of investing in an MLM scheme is that you could lose your money. Because MLM operates a pyramid scheme that uses the subscription fees of new recruits to pay existing members, there is a high likelihood for later investors to lose money. This is because the world generally has limited number of people. For example, a study conducted in Britain found that only 10% of Amway's agents in the UK make a profit; 90% run at lose.

Another danger in investing in an MLM scheme is that their products are nearly as unmarketable as used condoms. A British study also find that less than 10% of investors are able to market the products they received at registration. This problem exists because most of the products have only imaginary benefits and are usually very expensive, more expensive than other competitive and well-known products in the market. So, the chances of making money through the sales of products are narrow if not nonexistent.

Lastly, investing in an MLM scheme puts your integrity at risk, the reason being that you'll have to recruit people who will recruit other people that will also recruit people. In between, you'll surely have people who will lose their investment because they are unable to recruit new people. In such unpleasant situation, your integrity may be question.

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Conclusion

From my findings and homework, I'll have to decline my friend's request because I do not want to get involved in a scheme where I will have to recruit new people who will also have to recruit new people (and the chain goes on) before I am able to recoup my investment. That does not sound legit to me. I'll rather invest my money in Bitcoin where I do not have to make noise about it.