What is MLM?
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Multi-Level Marketing is a business model where the primary method of making money is by getting other people to buy into the business.
Say I make vacuum cleaners. I found a business called Sucky Corp. But, I don’t have the money to produce units on a large scale, or to market my brand to a wide audience. So, I go door to door in my local neighborhood, selling my sucky vacuums. I find two people who are really interested in the company, and I make them each an offer. Instead of just buying vacuums from me, they can pay me a large sum for a bulk inventory of vacuums, which they can then sell door to door just like I have. And, if they want, they can also offer this deal to anyone else they want to. If they get anyone to pay me the entry price for bulk vacuums, I’ll give a small cash bonus to the person that got them to sign up.
So, the company has multiple levels of employee, all of whom are doing the marketing for the brand. The person at the top is collecting the buy in for everyone who joins, and the people in the middle are collecting a cash bonus for every new addition to the fold.
Why this is commonly a scam is that adding new people is more profitable for all involved than actually selling the product. In many cases, the products are cheaply made and never expected to really sell. Instead, people buy into the company, then find that the only way they can make their money back is by convincing other idiots to also buy in. Eventually the company will expand to the point where the bottom rungs can’t find anyone else to sell their pitch to. The people who got in early laugh their way to the bank, the people at the bottom are victims of a con, and everyone ends up with boxes of sucky vacuums taking up space in their garages.
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