There are endless MLM (multi-level marketing) opportunities in cyberspace claiming to have the golden ticket. But you may ask yourself, can I make money network marketing? What’s the difference between network marketing and a pyramid scheme?
Do network marketing compensation plans pay out for the long term? Is MLM income and its seemingly endless recruiting sustainable? And most importantly, are you able to spot a ridiculous get rich quick scheme from a legitimate multilevel marketing opportunity?
Your friends and family who are involved in MLMs aren’t scam artists. Home businesses like ItWorks, Scentsy, World Ventures, Organo Gold, and Herbalife all use MLM business models. But when it comes to actually making money with a network marketing business, is this sustainable for the long run?
This article will take a look at network marketing and show why most who jump in fail. I’ll show the most popular network marketing companies out there and the most common compensation plan structures they use.
Then, I’ll go over real numbers from network marketing annual income disclosures that may surprise you. Can you make money network marketing? Let’s dive in!
Can I Make Money Network Marketing? Are all MLMs Pyramid Schemes in Disguise?
Watch the video below to fully understand the difference between network marketing and a pyramid scheme. What are some examples of popular MLMs? How do network marketing compensation plans typically work?
What is a realistic expectation for someone beginning a network marketing business? And most importantly, is network marketing a good way to make money online? All these questions and more are answered below.
The Difference Between Network Marketing and Pyramid Schemes
“So is that thing you’re doing one of those pyramid schemes?” This is the question everyone hears when they first jump into a network marketing opportunity. The fact is, it’s an honest question, and most people actually don’t know the real difference.
But let’s make no mistake about it. Network marketing opportunities are not the same as pyramid schemes. Network marketing is legal. Pyramid schemes are not.
In a pyramid scheme, money is exchanged without any service being rendered or product being sold. Pyramid schemes are completely illegal.
Have you ever heard the story of the man who gathers 10 people together and charges them $100 each so that he can show them his secrets on how to make a quick $1000?
The 10 people each give him $100 and wait with anticipation. Now with $1000 in his pocket, he tells them all to go find 10 people just as gullible as they were. He walks away $1000 richer and ten people stand there with empty pockets.
That is a prime example of money changing hands with no service being rendered. What’s a bit rattling is that many online opportunities disguise themselves in such a way that it isn’t so obvious that this is going on. DON’T FALL FOR PYRAMID SCHEMES!
Network marketing, on the other hand, involves the purchase of a central product or service.
You will not only buy the product yourself, but you’ll also gather customers who buy the product as well. Additionally, you’ll be recruiting other representatives who will follow suit doing the exact same thing you’re doing.
There is usually an initial buy in price and there are recurring monthly dues. These usually come in the form of an autoship of more product. The recruiting of other representatives is usually done through home meetings where you show friends and family the same compensation plan you were shown.
One of the main reasons for its popularity is the idea of getting paid on the efforts of others. You’ll earn commissions by recruiting representatives into your team and also from the amount of product you and your team sell.
What are the Most Profitable MLM Companies?
There are many successful network marketing companies who have been in business for a number of years. However, this doesn’t necessarily mean their distributors are all making money with the business.
A true measure of profitability within a network marketing company is the annual income disclosure statement. We’ll take a look at a couple of examples further down in this article that may shock you.
There are literally thousands of network marketing companies to be found online. Some have been around for decades, while others are new up and comers.
Some popular network marketing businesses you may have seen on your social media feeds are:
- Organo Gold
- Avon
- Herbalife
- World Ventures
- Stream Energy
- Ambit
- Amway
- It Works
- Thrive
- doTerra
- Kyani
- Scentsy and many, many more.
The vast majority of all network marking companies follow versions of the same compensation plan. These involve downlines and growing “legs”. Let’s take a look at the most popular network marketing compensation plans.
How do MLM compensation plans work?
There are several compensation plans widely used within the network marketing industry. It’s always important to research and understand the compensation plan before beginning a network marketing venture.
While each specific opportunity can add it’s own nuances to a compensation plan, the majority use the core elements of the UNILEVEL, BINARY, and MATRIX compensation plans.
How Does the Unilevel Compensation Plan Work?
With the UNILEVEL compensation plan you can personally sponsor as many representatives into your team as you like. The representatives you recruit are then free to do the same.
It is the simplest of the 3 main MLM compensation plans. You will get the most compensation for the members you personally sponsor. You then get decreasing percentages of your team’s commissions as they get further away from you.
In this basic compensation plan there are no ranks and everyone is an equal distributor. No one can surpass someone who’s above them. There are hybrids of this compensation plan like the Breakaway compensation plan. The Breakaway plan allows for a member of your downline to be able to “break away” when he or she meets certain requirements.
How Does the Matrix Compensation Plan Work?
With the MATRIX compensation plan you have a set number of spots open in your team. It is your job to fill them.
For example, in a 3×5 Matrix compensation plan, each distributor can sponsor 3 people into the team. They will get compensated up to 5 levels deep.
When it comes time to sponsor that 4th new distributor, instead of being able to place him directly to yourself, you have to find an open spot in another level below. This is called “spillover”.
This “spillover” feature is one of the selling points of the Matrix compensation plan. If you find yourself directly under someone who is exploding the business, you may be the recipient of distributors being placed in your team.
How Does the Binary Compensation Plan Work?
The BINARY compensation plan or Dual Team compensation plan allows you to build two teams, or legs. One on the left, and one on the right.
It is unique in that it only allows you to personally sponsor 2 people into your team. This allows for a good amount of spillover, thereby helping your downline.
If you’ve checked out my World Ventures review, World Ventures is an example of an MLM using a binary plan.
The Binary compensation plan has one major downside. You only get paid for the lesser of the two teams. So to fully max out this compensation plan you’d need your team to grow out symetrically which is very rare.
In other words, if your team on your left leg has absolutely exploded, with 100+ members and growing, while your team on your right leg has only 3 distributors in total, you get only paid on those 3 distributors on the right and not on the exploding 100+ on the left.
The Reality Check: Network Marketing Income Statistics
The real way to answer “Can you make money network marketing?” is by looking at annual network marketing income statistics. This is an objective way to determine how the majority of people fare with a business opportunity.
Income disclosure statements are public record, and should be easy to look up and easy to understand. It will show the revenue breakdown for distributors of a company.
Unfortunately, the vast majority of network marketing income statistics show that most distributors do not make their money back with network marketing MLMs. A staggering amount make no money at all.
Let’s take a look at two different income disclosure statements for network marketing opportunities I’ve written reviews on. The first is for Organo Gold.
As you can see at the very top of that annual income disclosure, the vast majority (86.34%) of distributors with Organo Gold made an annual revenue of $0-$599.
When you take into account the expenses and membership fees involved for this particular coffee based MLM, the earnings is far less than the expenses.
This means zero profit.
Additionally, as with most MLMs it is only the top 1% who make the lofty six figure incomes you see in the business presentations.
Now, I am by no means picking on Organo Gold. This is simply one example of a popular MLM. I’m using their own annual income disclosure that they provide and is public record.
Another very popular network marketing company that I myself was a customer of is World Ventures. Their income disclosure statement actually fares even worse.
In the example shown above, barely a tenth of 1% of distributors earned what I would call full time income ($55k+). A whopping 79.95% of all distributors didn’t earn a single commission: $0.
In my World Ventures review I show a more recent annual income disclosure that’s even worse. Ouch.
Does this mean World Ventures or Organo Gold, or any of the popular MLMs you see out there are scams? No.
If you don’t mind the constant recruiting, you can make some extra income with these opportunities. Many representatives absolutely love the social aspect to network marketing business and the “pep rally” feel to the business presentations.
However, when you need your team to thrive, and the vast majority of your downline aren’t profiting, this leads to dead legs and profits that come to a screeching halt.
Final Thoughts
Network marketing MLM opportunities appeal to many people looking to work from home and be their own boss. The difference between network marketing and a pyramid scheme is all about the product or service rendered.
Legit network marketing opportunities use a number of compensation plans like the unilevel, matrix, and binary compensation plans. Also, to be successful in MLM, be prepared to recruit, recruit, recruit.
Further, MLMs usually claim to have multiple ways for their distributors to earn revenue. They sell the idea of getting paid on the efforts of others instead of only getting paid on your own. Unfortunately, the network marketing annual income statistics tell a drastically different story.
The fact of the matter is that only a very, very, VERY small percentage of representatives will make full time income. The vast majority who get involved with network marketing opportunities do not make their money back.
If you’re looking to create a new revenue stream online, there are better, more straightforward ways to build an online business. Affiliate marketing is one of them.
Check out my top recommendation for anyone looking to get started in affiliate marketing. The training is thorough, and I’ve had nothing but positive experiences with it.
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Thank you for this article. I enjoyed it because I used to be in network marketing in 2016 through a company you mentioned above called WorldVentures.
Although I never made a sale network marketing gave me personal development skills like public speaking and confidence.
I didn’t know the other companies as popular as these.
The problem is most people think MLM is a scam and a pyramid scheme, thanx for educating people.
Thank you for your insight and perspective. 🙂 I’m glad you got what you needed out of your venture and see it as a positive experience. Thanks for the comment!
I’m really glad that I found your article Eric. You answered my question on the difference between Network Marketing and A Pyramid Scheme. To be honest, I don’t consider myself a socially active person so I guess I’ll just leave it alone and stick to other online businesses. Thanks for the great article!
Very happy to help! Thanks for the comment!
My friend. It seems like scams are here to stay! Just look around. As I read your article, the first thing I thought of was back-in-the-day, during my early network marketing career. Scamming seems the norm back then. Everyone was on the take. I was involved in a pyramid scheme before,and it seem like quick easy money. Just recruit others into the organization and make money. Biggest pyramid scheme like I’e never seen. Yeah, hey all need to be ban.
Well as I mention in the article, there’s a difference between pyramid schemes and network marketing. Thankfully, most pyramid schemes have huge red flags that only take a little common sense to be aware of. As for network marketing, I’d definitely hesitate before jumping into one as a business venture. Thanks for the comment!
Hi,
Very insightful article, I am surprised by the numbers you mentioned and the fact majority people are only earning very little annually. I remember attending a “success conference” along with my friend for one particular MLM – I still remember the scene was quite different out there, you see people talking on the stage and claiming how they earned so much as passive income and I am sitting there and wondering…am I missing something here?
I will look into your other posts and would like to explore about affiliate marketing as well…thanks for this eye opener!
Yes, MLM conferences can seem slightly “cult-ish”, lol. The annual income disclosures from these popular MLMs really do speak volumes.
Excellent article on network marketing and there is a big difference between network marketing and pyramid schemes as you explained you see tons of those every where people promising you’ll be successful just to try to get your money and then they will tell you there secrets behind it all unfortunately it’s happened to me before but it’s realy easy to fall into a scheme we are all new at one time or another you live and you learn and I think everyone thinking of looking into ways to make money through any kinds of marketing platforms should read this to be better informed on whats realy going on great information very helpful and well layed out keep up the great work -Jonathon
Thanks, man! I appreciate it!
There is a lot of detail here. It is clear that you have done your research and know your stuff. I would imagine that more people are looking for viable options for making money at home with the recent pandemic. Thank you for sharing.
That’s exactly right. I get a lot of DMs on instagram asking me about network marketing opportunities. Thanks so much for the comment!
I have experienced in MLM programs before. But I definitely not a big fan of it. In fact, I am one of the victim of MLM. I need to take time to appreciate your article for revealing their ugly truths. I’m sure your content will avoid a lot of people from the scam, too.
I appreciate your honesty. Thankfully, every mistake is an opportunity to learn. Thanks for the kind words and for adding your perspective!
Hi Eric,
I did some research on the MLM business model a while ago. As you mentioned there are a lot of MLM business opportunities but not all of them are genuine.
Based on my research I often found the compensation plan of the MLM companies is very complicated. The people who join the company in the beginning or the people at the top of the ladder make more money. Another shocking thing is success is rare with the MLM business model. Nearly 74% of people fail with the MLM business model without making any money. Also, the MLM company’s products are quite expensive.
Thanks for providing the list of genuine MLM companies. The information you shared on the difference between network marketing and a pyramid scheme is an eye-opener.
I really appreciate your well thought out response. Thanks for the insight and thanks for the comment!
Nice write up. However Network marketing is not for everyone because it has come with a lot of backlash in the past. There are tons of people who have made it in the industry and very few good companies still existing have amazing compensation plans. The only way mlmers can be successful is to following some guiding principles on how to run a successful business online, which includes having a landing page, using video, more research on the products and company, being extremely patient before they see revenue and creating quality content providing solutions. Good job though.
I think I’d be hesitant to say that tons of people have made it when even the top rated MLMs have numbers showing that the vast majority are failing. Those annual income disclosure statements are shocking. But if you do have an income disclosure statement from a successful MLM showing their reps fairing otherwise I’d love to see it! Thanks for the comment!
I have seen way too many MLM businesses on Facebook but the one I’ve been seeing the most is youngevity, which I’ve personally been – somehow – involved with way back in 2014. I wasn’t clearly aware of the difference of a pyramid scheme and what an MLM was and after reading this post I now have a clearer a wider vision towards those topics!
Very glad this helped! I hadn’t heard of that one personally. I’ll have to research it and look into reviewing it. Thanks for the comment!
While Network Marketing has a similar Pay Plan to MLM they don’t have the same cost of doing business. A true network marketing program has an affiliate program structure with no cost to become a seller like a forced auto-ship or a distributor fee. Still, I love the way you break down different types of MLM or Multi-Level-Marketing pay plans as they often require a CPA and a lawyer to decipher. When choosing a program the best rule of thumb is if you can’t tell how you get paid you shouldn’t join.
I think you may be confusing some terms here. Network marketing *is* multi-level marketing. The two are one and the same. Network marketing doesn’t use an affiliate marketing structure, as network marketing and affiliate marketing are completely different. For a detailed look at how affiliate marketing works, check out my full article here. Thanks for the comment!
Thank you so much for this helpful article about whether you can make money from network marketing. I had a friend recommend selling Amway to make additional money and although I am interested I didn’t really know what it was about and my friend told me I could make a lot of money but he is rather pushy and he has been doing it for years. So I found your website, and what a wealth of info you have here. You pretty much clarified all of my questions and I think that the idea of selling and creating additional legs is not for me, I am not very good at” sales” although I like the idea of looking into the Amway annual disclosure statement, the way you did for WorldVentures, and see what reps have been earning.
The numbers don’t lie! While it may be fun for your friend, sometimes we have to be honest with ourselves when we know we’re not cut out for something. And while your friend means well, sometimes the pressure to recruit creates exaggerations of success. Best of luck to you and thanks for the comment!
Very informative article Eric. Answers a lot of questions on network marketing and pyramid schemes. Personally, the idea of constant recruitment of downlines in network marketing is what has always left me sour. Add to this the near certainty of not making a viable income (per the helpful statistics you shared) and network marketing almost seems dangerous territory. I have friends that say they love it who approached me knowing I’ve been looking for a new source of income, but it’s just not for me.
I would love to know more about the affiliate marketing model. Will see you for the training soon.
Cheers
Joahi
I hear you man. Network marketing opportunities often begin to sound like joining a cult with all the pressured sales and recruiting that goes on. For me, affiliate marketing suited me much better and was much more my speed. Create your account with the training community I link to in the article above, and you’ll get me as your personal support coach. I’ll be happy to help you in every way I can. See you on the inside!