Questions to Ask Before Joining an MLM

By:   Lynn M. McKeel, Fall 2017 IAC Student Intern

The allure of the MLM business model draws thousands of people a year. Before you begin, consider the following questions. If you don’t know the answers or the concepts are unclear, take some time to truly become familiar with the model. This could be a huge investment, not only a financial investment but an investment into a new lifestyle, one that may include long hours, new sales tactics, or even a marked difference in relationships with your closest friends and families.

  • What is your Rep’s churn rate?

In other words, how many representatives leave the business every year? Some MLMs will tell its new members that it is normal for people to leave. However, compare the “churn rate” to that of the number of small businesses that close each year.  If your MLM is comparable to a small business, you’d expect around 10-20% of its  Reps to leave each year. If that number is higher, find out why.

  • Ask to see the Disclosure statement.

The State of Georgia requires MLMs to provide an income disclosure statement. This disclosure statement usually includes the company’s financial situation. You want a comprehensive and transparent disclosure statement. O.C.G.A 10-1-410 (5)(b) requires the Seller/Company to provide a disclosure statement within 48 hours. Please see Part 4 of the Series for a more in-depth look at disclosure statements. While your State may not require a disclosure statement, most companies still have one prepared. Always ask to see this, even if not required by state law.

  • What structures do you have in place to prevent saturation?

You may be shocked to learn that the second largest industry in Utah, behind only tourism, is MLM ventures. It is estimated that 75% of adults have participated in an MLM venture at some point in their adult lives. MLM success relies on the ability to push product and recruit new reps. If your town has a makeup representative at every church or a supplement member center on every block, you may want to reconsider your strategy. Before you pay for a starter kit, ask the MLM representative what structures they have in place to prevent saturation. A conscientious MLM will restrict the number of reps in any given area.

  • What structures does the MLM have to prevent signing up people who can sell?

Nearly every company in the world requires qualified job applicants to pass through some sort of interview or resume review. Does the MLM use the same diligence when considering potential representatives? An ethical representative will be forthcoming with any reservations they have about you as a seller. They will consider your potential market, your financial ability to maintain monthly or quarterly fees and inventory purchases, and your experience as a sales person. A representative who does not consider your specific needs and capabilities is not interested in your success so much as they are interested in their ability to grow their downline.

  • If buying a food product, does the product have an expiration date?

The difficulty with food products are the shelf life. Regardless of the realistic safety precautions a seller must make, the food product will have an expiration date. Will you be able to sell off the product before it goes bad? What is your plan for preventing expiration and loss? Even if you can sell the product, will the consumer have enough time to use the product before it expires? What role does the company play in preventing product loss?

These are just a few questions to get you started on your MLM journey. A responsible and ethical MLM will be forthcoming, maybe even required by law to provide this information. Don’t be afraid to ask questions frequently.