The Truth About Multi-Level-Marketing (MLM) Companies

if you are a small business owner or entrepreneur of almost any age or experience, there is little doubt that you have most likely been pitched on joining a multi-level-marketing or network marketing company.

Often these pitches come with big promises of passive income or large commission checks with little to no work. But that seems too good to be true. What do they really involve?

I asked Ray Higdon, who was the top income earner of a multi-level-marketing company that he joined while in personal foreclosure.

Last year, his coaching and training company Forever Wealth Club made the Inc. 5000 list as one of America's fastest growing companies. He solely serves the network marketing/multi-level-marketing profession. Ray has also shared the stage with people like Bob Proctor, Robert Kiyosaki, Brendan Burchard, and Tony Robbins.

Here's what we talked about:

Kasteler: In regards to multi-level-marketing, should people be skeptical?

Ray: I used to be very skeptical about multi-level-marketing. I was a successful real estate investor and back in 2006 when my real estate partner came to me with a "juice" opportunity I seriously thought it was a pyramid scheme and had I zero interest.

Two things happened that changed my mind though. First, my partner gave me some of the product and I gave it to my mom and my then girlfriend and they both came back saying taking the product made them feel better in different ways. The second thing that happened is I attended a meeting and met the "upline" who at the time was making about $8,000 a month.

Back then my partner and I had 37 rental units in the very low-income areas of Southwest Florida and if we made $100 residual per door that was a good month. To acquire that much real estate took hundreds of thousands of dollars and a whole lot of man-hours to deal with that many tenants. With damages and vacancies it was rare for us to actually profit that targeted $100 per door or $3,700 per month yet here was this upline that had simply told other people about a juice, had started her entire business for about $1,000, had no risk of tenants suing her and was making $8,000 a month.

Do you need to invest a lot of money or resources to start a business as a network marketer?

Ever watch Shark Tank? You get a glimpse as to what it takes to run a business. You will hear things like trademark attorney, supply chain management, commercial overhead, outsourcing, research and development, etc. Well, you don't need any of that to start a business as a network marketer.

Recently I spoke at a private marketing mastermind held in Las Vegas by my good friend Russell Brunson, the founder of Click-Funnels who has been featured on "The Profit" with Marcus Lemonis. I was the only one there representing the multi-level-marketing profession and when I started I was staring at a room of skeptics and when I was finished with my brief talk I had several of these multi-million dollar a year business owners tell me that I had totally changed their mindset around Network Marketing.

Over the years I have learned the online and offline skills of sales and marketing that could apply to any business. I am most certainly not "stuck" in the network-marketing niche but actually choose to be here.

Are there a lot of people in network marketing?

Yes. Every single month there is a 20,000-plus person event for multi-level-marketing in the US alone.

Think about that for a minute. Have you ever been to a 20,000-plus person event for real estate? Sales? Marketing? Online Marketing? Maybe once a year the great Tony Robbins can get that size of audience, and that is a maybe, but here I am saying every single month you can catch a network marketing event with that many people there. IF you are driven at all by impacting others, network marketing is a great place to do just that.

The people out there pitching horribly, spamming Facebook or coming to business owners with bloated promises on "get paid lots to do little"?

Well, they are simply uneducated new entrepreneurs that have not had the type of training needed to properly represent the opportunity. If someone in multi-level-marketing has pitched you horribly, understand that they probably have a full time job and this is their first venture into being an entrepreneur. They may not be able to handle all of your objections or questions, and probably won't explain it right if they do.

Those that don't understand how to explain it or hound their friends and family with the "next best opportunity" can definitely create some skeptics that instantly think "pyramid!" - No question. But again, this is just because of improper experience and training of the reps, not because of the actual model.

A Pyramid or Ponzi scheme operates off of the principle of "robbing Peter to pay Paul." In other words - illegal and very short term. Network Marketing is perfectly legitimate, legal and in fact endorsed by some of the biggest names in finance. Most people wonder if network marketing is a pyramid scheme because of two things:

Let's tackle No. 1 for a minute, that the structure is shaped like a pyramid. Can you think of one corporate structure or org chart that isn't shaped like a pyramid? It's a common misconception that people have because of the stigma that salesy, untrained network marketers have given the profession with their approach. Almost anything out there that has a company structure is shaped like a pyramid in some way, shape or form, and it has absolutely NOTHING to do with the legitimacy of the model.

As far as No. 2 goes, the term "pyramid" was thrown around pretty loosely, when in actuality network marketing is one of the most regulated industries around "pyramid or Ponzi" type activity. Network marketing companies have some of the strictest laws and therefore are extremely careful with how they incentivize the reps building their teams.

Is there anything people should lookout for when joining a network marketing company?

If you come across a company that only pays people based on recruiting, run because it won't be around long. There are definitely people that start MLM companies that don't know what they're doing and create bad press. Of course the media has a hay day with these stories, but in actuality it's a very small percentage of the NM profession as a whole.

However, when you find a solid company that pays people based on the sales of products from yourself and the team you build underneath you (which is most MLM's), then this is a perfectly fine and a great way to create a residual income.

Take real estate brokers for example. They bring on agents, and in turn get paid on every sale of a home within the brokerage. The same applies to network marketing; it's literally the exact same concept, the only difference is it goes multiple levels.

Is it true that network marketing is low work and large payout?

If you are being hyped about low work, large payout, it isn't true but know that they aren't being taught that by their company they are just saying what they think they should say because they don't have real experience as an entrepreneur or like all professions there are people in network marketing that do stretch the truth and don't run their business with integrity.

Business owners with credibility with others, and an understanding that network marketing is all about introducing people to the tools of the company and allowing those tools to do the work to determine if the product, service, or opportunity is a right fit for them or not can create an additional income. If you approach it this way and without hyping the opportunity and you understand it is a long-term approach, it may be a great additional income to the small business owner or entrepreneur.

We believe most business owners would benefit from being in a network marketing company if only to experience the culture and witness how to build your tribe or following and you just may find out that once you get past some of the nuances you may actually like it. Whether you become a full time network marketer or not is up to you for many, network marketing is the gateway to being an entrepreneur and for that, we are very proud to represent the profession.