About one in thirteen adults (18+) have participated in at least one in multi-level marketing (MLM)–sometimes referred to as direct sales or network marketing–organization during their lifetime, according to the AARP Foundation.1 But do these people really make money doing multi-level marketing? How likely is MLM success?
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Jon M. Taylor, Ph.D. is the founder of Consumer Awareness Institute. He set out to answer these questions by conducting extensive research and analysing the compensation plans for more than 400 MLM businesses. His findings were compiled in an ebook entitled “The Case (For and) Against Multilevel Marketing”, which was published by the Federal Trade Commission in 2011.
Recent research by the AARP foundation explored the expectations, mindsets and experiences of MLM participants. The results were published in a report titled “Multi-level marketing: Research, Risks and Rewards.”
- Both studies show that success in MLM organizations is possible, but not common.
- MLM Success Rates and Dropout Rates
- According to the AARP Foundation’s study, 44% of participants quit after less than a year of working in an MLM. Taylor’s research also shows similar results and provides more detail on the dropout rates.
- In the first year, at least 50% of MLM representatives quit.
- Within five years, minimum 90% of representatives must leave.
Only those who are at the top or close to it have not left by year 10. This means that at least 95% have quit.
When compared to small business failure rates, these numbers are not encouraging. The U.S. Small Business Administration reports that 20% of small businesses fail within the first year. About 50% last for five years or more, while about one third survive beyond 10 years.
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An MLM Investment
Taylor conducted research on the cost of launching a business-building campaign in a recruitment-focused MLM. This would include a company offering compensation for recruiting “downline” teams and selling products.
Incentives, products, phone and internet, giveaways, advertising, travel, and other expenses are all included in his total estimates. He joined a company that specialized in recruiting and worked for the company full-time for one year. He attended conferences and bought monthly training products.
Making Money in an MLM
Is it possible to make money in MLMs? Although the short answer is yes, very few MLM representatives are able to realize the high earnings promised in MLM marketing materials or at meetings. Some people make no money, while others lose their money.
According to the AARP Foundation, only 25% of respondents made a profit from MLMs, while 27% were at loss and half of them had lost money. The quarter that made a profit was:
- 14% earned less than $5,000
- 6% of the earnings were between $5,000 and $9.999
- 3% of the total amount earned between $10,000 and $24,999
- 3% earned $25,000 or more
- A minimum of.05% earned $100,000 or more
- Not all MLMs are the same
It is important to thoroughly research any MLM company or products you are considering joining. It must also be a product or system that you are comfortable promoting.
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Many single-level marketing businesses sell products without any recruiting component. The likelihood of earning income is higher than in typical MLM statistics. Because compensation is based on selling products, there are no minimums or downlines. Some MLM companies are product-centric, with compensation plans that focus on product sales.