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How to Evaluate an MLM Business Opportunity

First, what is an MLM business opportunity? Multilevel marketing (MLM) refers to a product selling system that relies on independent distributors, and involves multilevel payouts for each product sale. Distributors sell product as well as recruit other distributors. At sale, the immediate distributor collects a fee for making the sale, and the "upline" distributor, who recruited that seller as part of his or her "sales force", also collects a fee on the sale. However many upline distributors are connected to a product sale, by a direct distributor/recruit relationship, there are that many fees paid out on the product sale.

An MLM can be a very supportive environment in which to learn the ropes of running your own business. Unfortunately, a legitimate MLM business opportunity can be easily confused with a pyramid scheme.

Both an MLM and a pyramid scheme rely on a product selling system based on multilevel payouts. The difference is that in an MLM the goal is for everyone to make money from product sale fees. While, in a pyramid scheme, the goal is to defraud all of the distributor/sellers by funneling all fees to the creators of the pyramid scheme – with no interest in the sale of the product or customer service.

Here are five points that will help you separate an MLM business opportunity from a pyramid scheme.

  • Is a substantial investment required for you to join the MLM business as a distributor?
    • Many MLMs do require that you purchase initial product inventory, but only enough to sustain you through the first few weeks of selling.

  • If you are required to buy initial inventory, will the MLM buy it back, minus a stocking fee of no more than 20%? A legitimate MLM will buy back your inventory.


  • Does the MLM have a clear and robust marketing plan, which includes extensive literature and selling-strategy training materials? A legitimate MLM is focused on selling a product or service, sales should not appear to be an afterthought.


  • Does the MLM focus almost exclusively on distributor success stories and sales force recruitment techniques, with little or no mention of products or sales techniques? No legitimate MLM will function in this manner, but almost all pyramid schemes do.


  • Does the business model pay you more money to recruit new members, rather than to sell product? And, does the business pay you commissions for recruiting new members? If so, what is presented as an MLM is most likely a pyramid scheme.



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