Is Multi-Level Marketing (MLM) and Network Marketing Legal?

Is Multi-Level Marketing (MLM) and Network Marketing Legal?

The extreme polar views on the topic of multi-level marketing and network marketing can make it a difficult topic to discuss. Some people are passionate about it in the extreme, and there are even top celebrity authors like Robert Allen, Mark Victor Hansen, and Robert Kiyosaki doing it and advocating it.

Yet, in many circles, you might as well declare yourself a leper as admit to being in network marketing.

Is multi-level marketing and network marketing legal?

Well, the short answer is yes—it's legal in the U.S. when executed properly, under the right regulations.

The problem is multi-level marketing, and network marketing companies are usually intentionally complicated, vague on important details, and it's often difficult to tell whether or not the business is built around consumption of an actual product—or the premise that you need to bring more people in "under" you, in order to succeed.

The Problems with Multi-Level Marketing and Network Marketing

Maybe it's the pyramid structure, but you can't really take issue with the tiered compensation structure. Almost every large sales organization in the world has that. Salespeople get commission and sales managers get overrides or bonuses on top of that, and sales directors on top of that, and VPs on top of that.

Maybe it's the fact that you have to pay to participate in it? But that can't be it; that's a standard franchising model. The franchise fee of most traditional franchises dwarf the sign-up cost of any MLM program by comparison.

Now certainly, there are illegal pyramid, or "Ponzi", schemes. This is where the money is all being made off of signing up other people, with little or no real product ever being delivered. But in spite of whatever perceptions people may have, the fact is that Amway, Excel, Herbalife, Melaleuca, PrePaid Legal, USANA, and many others have sold millions upon millions of dollars of products to customers, many of whom are not also reps.

So, there may be a perception problem here, but if so, the perception is out of line with the reality.

Are bad multi-level marketing reputations based on facts and research?

The real problem with MLM is not MLM itself, but some of the people it attracts. Network marketing is just a business model, and it really amounts to "micro-franchising". Its upside is that it has a very low cost of entry, with the potential for exceptional revenue, and there are those who achieve that.

Yet those same things that make it attractive make it attractive to many who are not really qualified or prepared to become business owners. The salient characteristics of MLM make it attractive to people who:

  • Have not done well in their business or profession and have little money saved up to invest
  • Have no previous experience owning or running a business
  • Have no previous experience in sales
  • Have little or no experience developing business relationships other than that of employer/employee/co-worker
  • Are not satisfied with their current level of income
  • Have unrealistic expectations of the amount of work involved compared to the revenue realized

As a result, many network marketers end up:

  • Over-selling the opportunity
  • Inappropriately discussing business in social situations
  • Coming across as desperate
  • Over-focused on new recruits and neglecting existing customers as a result
  • Being either inaccurate or deceptive when talking about their business

To pre-judge someone based on the basis of a small minority of people in that group is horribly unfair, but we must realize that most prejudices have some basis in reality, even if it has been distorted.

The Solution

There's a first time for everything, and network marketing/MLM is a great opportunity for people to have their first business, their first sales role, etc. Recognize it for what it is: it's a business, and you are a business owner. If you've never owned a business before, if you've never done sales before, if you've never networked before, you need to learn about how to do so, not just from the network marketing/MLM experts, but from established experts in those fields.

Network marketers who are serious about building a business should be reading and learning about business fundamentals, the latest sales, and marketing techniques, strategies for networking and business development, etc., not just swapping tips at your team's weekly or monthly meeting. Act like a small business owner, and people will treat you like one.