Ding! Dong! Multi-level marketer calling.

Ding! Dong! Multi-level marketer calling.

If you are entrepreneurial, willing to work hard and gifted in the art of sales, multi-level marketing could work for you. Photo: Michael Rayner
How would you like to inexpensively start a business that could, just maybe, see you make more money than you do now? You could work for yourself, and from the comfort of home.

That's the allure of "multi-level marketing", also called "network marketing" or "direct selling".

Well-known brands in the field include Avon and Mary Kay cosmetics, Herbalife nutrition products, Tupperware, Amway, Pampered Chef, Thirty-One and Scentsy. To start with, products are sold by you, often at parties that you host. But you make more if you recruit people to work under you as a seller – hence the name "multi-level marketing".

The industry claims US sales of about $US30 billion ($29.1 billion) and about 16 million American participants.

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But is it smart to spend your money on start-up fees, inventory, party-hosting, training and other expenses to get started in an MLM business?

It can be – but go in with your eyes wide open.

If you are entrepreneurial, willing to work hard and gifted in the art of sales, an MLM could work for you, experts say.

Relatively few people can do very well for themselves and make an MLM their career — although that's not always the goal of sellers. Often it's fewer than 1 per cent of multi-level marketing distributors who make the six-figure money often touted or intimated.

The industry's trade group, the Direct Selling Association, puts median annual earnings at $2400, although critics say the vast majority of sellers make nothing at all.

Joe Mariano, president of the association, said that his group's mission was to make sure marketing practices by members were "at the highest level of ethics and responsiveness to consumers".

Here's what to know if you're thinking about trying an MLM, according to the US Federal Trade Commission, the Direct Selling Association and other experts.

Avoid the pyramid
The biggest criticism of MLMs is that some can be "pyramid schemes", in which distributors are compensated for recruiting new sellers, not selling products. With a pyramid, only people who get in early on the scheme make money, and the pyramid collapses when it runs out of new recruits.

The FTC has pursued and shut down MLMs that emphasise recruiting more sellers, rather than selling real products to the public.

"If the money you make is mainly based on the number of people you recruit and your sales to them, it's a pyramid scheme," the FTC recently said in a blog posting on its site.

Known which MLMs to avoid Signs of an MLM to avoid include those that pay for merely recruiting new members, rather than paying commissions based on the sale of products by sellers, and those who work under them. Large upfront fees are also a red-flag, as are requirements to buy large amounts of inventory up-front.
Do you have what it takes? Ask yourself hard questions about whether you're cut out for personal selling. Avoid companies that suggest that time, effort and skill are not required to succeed. That's exactly what is required. And keep in mind that if you want to make more money, you'll have to be skilled at recruiting new sellers. Often sellers will begin selling to friends, family and neighbours, perhaps recruiting them to sell products. "Not everyone has the chops to be a great salesperson," said Anne Coughlan, a professor of marketing at the Kellogg School of Management at Northwestern University in Illinois, who studies different sales methods, including MLMs, and has consulted recently for Herbalife."Sales force skills are learned and practised over time," she said.
Do your due diligence The research you need to complete before sinking money into an MLM is the same as if you were going to start any business — selling insurance, real estate or becoming a franchisee, Coughlan said. Do you think the products are of value, and can you be enthusiastic about selling them? Are they overpriced or unsafe? "Apply a healthy dose of scepticism before buying or selling products advertised as having 'miracle' ingredients or guaranteed results," the FTC advises on its site, found here. "Many of these 'quick cures' are unproven, fraudulently marketed and useless." Do an online search of the company's name along with keywords such as "review", "scam" or "complaint".
Watch expenses One common problem in MLMs and many business start-ups is spending too much money on the business before you're making much. Legitimate MLMs make clear that the decision is up to sellers about how much they spend on expenses such as training programs, travelling to seminars and hosting parties, Coughlan said. "It's not a bet-on-the-come type of business," she said.
Cut through the hype Be sceptical of promises or suggestions of huge earnings. Legitimate companies will be candid about your earnings potential. For example, Herbalife, the Los Angeles nutritional products seller, recently released information about its distributors' earnings for 2012. Last year, 88 per cent of distributors received no commissions from the company in 2012. The company said that was due in part to many distributors joining to get a discount on Herbalife products they personally consume, and not attempting to sell products. Overall, just 646 Herbalife distributors out of 493,862, or 13 people out of every 10,000, made more than $100,000 in commissions last year, according to the company. "On average, people make relatively small amounts of money doing this," Mariano said. "That's not unusual, nor is it unexpected, because people do it only on a part-time basis."
Look for the "out" Examine the worst-case scenario — that the MLM is not for you. What's the refund policy for your entry fee? Can you sell back inventory if you want to quit? Get that information in writing.