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Take A Hard Look Before Leaping

Indeed, investigating specific MLM companies may be the most important thing to do before making a commitment to MLM. Spend time checking into ones you're considering. You probably spend 10 or 20 hours a week watching television. Isn't it worth taking that much time before you embark on a new career? How can you check into an MLM company's reputation? First, find out some basic information about the company:

  1. How long has it been in business?
  2. What is its sales volume?
  3. How fast are the company's sales growing?
  4. How fast is the distributor network growing?
  5. How cooperative is the company in providing information about itself?
  6. Does the company belong to professional or trade associations, the chamber of commerce, the Better Business Bureau, etc.?
  7. Has the company filed all the necessary legal documents in your state?

After you have this information and if it looks promising, here are the steps you need to take:

  1. Ask to speak with distributors who have been with the company for several years. Talk with these people in person to find out if they're the type of people with whom you'd like to associate. Find out how well these people are doing and how satisfied they are with the company's support and its product line.
  2. Check into the company's financial situation -- many MLM organizations have perished because of a lack of capital. If you're not financially sophisticated, ask a friend, a relative, or professional advisor for help. You want to see financial statements audited by a reputable firm that's not related to the MLM company. Other documents to inspect are a Dun & Bradstreet report and a TRW credit history on the company.
  3. Ask for the names of the company's major suppliers. Then call the suppliers to find out if the MLM company makes its payments on time.
  4. Make sure there are no serious lawsuits outstanding. There are a lot of frivolous lawsuits today, to be sure, but meaningful suits against an MLM company can indicate an organization of which to steer clear. In addition, a successful suit may wipe out a company's assets.

You or your attorney can institute a pending litigation search through Equifax or Prentice-Hall Legal & Financial Service. In a similar vein, ask about complaints at your local Better Business Bureau and your state's attorney general's office. A list of complaints is not unusual, but those complaints should be resolved.

  1. Find out if the MLM company uses state-of-the- art computer systems for sales organization reports, inventory control, sales analysis and forecasts, marketing projections, tax records, etc. If the company doesn't, it will find it difficult to get its organization under control -- and difficult to generate accurate, timely commission checks.
  2. Before you commit yourself to an MLM company, find out what its policy is on "frontloading." That is, some companies pressure distributors to buy certain amounts of inventory each month; in some cases, you have to buy a certain amount in order to qualify for commissions. If you see this kind of operation, back off. Reputable MLM companies don't use this technique, and they prohibit individual distributors from doing so. A legitimate marketing program will have no minimum purchase requirement and no inventory requirement for new distributors. However, distributors who sign up usually have to meet certain levels of production to qualify for continued participation or bonus compensation. On the other hand, don't shy away from an MLM company just because most of its sales are to its own distributors. Many successful MLM companies sell heavily to inactive distributors, people who stay in the company just to get discounts on their own purchases. Amway, for example, sells more than 80% of its products internally, yet it moves more than $3 billion a year and generates fat commissions for many of its distributors.
  3. Ask about the backgrounds of those holding top management positions. Ideally, you'll see track records that include success in MLM. Failing that, the company's founders should have records of success in other areas of the business world. MLM corporate officers should be working with the company full-time, not part-time.
  4. Naturally, the product line deserves careful scrutiny. A one-product organization is risky,no matter how good that one product may be. Suppose a competitor introduces a better or cheaper alternative? Look for a diversified product line, with many selections for buyers to choose among. What's more, a company selling vitamins, cosmetics, pots and pans, etc. will have a lot of competition -- it will need to be truly superior to survive. Companies with unique product niches may have a better chance of success. You should be looking for a company that continually introduces new products. For example, Nu Skin International recently developed an odor-fighting, anti-bacterial agent for deodorants that was issued a patent by the U.S. Patent Office. The company is now selling a "time-release" deodorant using this agent, a deodorant that has been positively mentioned in trade magazines.
  5. You should also look for an MLM organization that supports its distributors. How? The parent company might run ads in national publications, promoting a great business opportunity. Then, the leads that are generated are turned over to the closest distributor. With this process, you'll have a steady stream of prospective recruits who have expressed interest in a business venture. What's more, a solid company will turn recruiting ads over to you and your distributors, so you can use them. Another means of support is a team of regional sales consultants. If you or anyone in your downline has a sales problem, you can reach your regional distributor on a toll-free phone line.
  6. Investigate the buyback policy. Typically, a legitimate MLM company will buy back inventory and sales materials from dropout distributors, within a certain time period.
  7. Another question to be considered is how an MLM company treats multiproduct selling. Suppose you have built up a successful downline for a cosmetics company. One of the distributors in your downline also begins selling for a vitamin company. The cosmetics company, upon finding this out, terminates your distributor. In an extreme circumstance, it might terminate you as well. If this happens, you could lose significant income after doing a great deal of work. So find out what the company's policy is on this issue before you go to the trouble of building a sizable downline.
  8. Sales training is crucial for an MLM organization. Remember, when you look at the expression "multi-level marketing," the emphasis really is on "marketing," which means, of course, "selling." To succeed, you'll have to sell new recruits on the program. Then, you or your recruits or their recruits will have to sell the end product or service to users. Therefore, sales training is a must for an MLM organization. Most people don't know how to sell; it's unfair to give them sales kits and say "Go get 'em." So find out what kind of introductory sales training is offered, and whether ongoing sales training will be available.
  9. What does the company's sales promotion material consist of? A top-notch MLM company will provide you with color brochures, audioDVDs and videocassettes, often at production cost. Such materials will help you recruit distributors as well as sell to consumers.
  10. Many MLM companies have internal newsletters. However, many of these publications are nothing buy hype, touting their products and the moneymaking opportunity. If you see a newsletter with practical tips on recruiting, selling, etc., you're probably looking at a serious MLM organization.
  11. In addition to offering competitive commissions, top MLM companies also provide health benefits, auto allowances, and profit-sharing.