Multi-level marketing or franchising? You decide
Originally posted on 23/05/2018. Updated on 29/05/2019.
If you’ve always dreamed of becoming your own boss but don't know where to start, you may want to consider alternatives to creating a business from scratch. Two options which are growing in popularity are franchising and multi-level marketing.
The franchise business model has numerous benefits for budding entrepreneurs but what is multi-level marketing, and could it be an option for you?
What is multi-level marketing (MLM)?
It’s a type of business ownership that forms the basis of some companies that you’re bound to have heard of, for example, Forever Living, Juice Plus, Younique, Amway, Herbalife and Avon are all MLMs, and there are plenty more out there.
Most people become aware of multi-level marketing, also known as network marketing, when they’re contacted by an old school friend or someone that they once met at a wedding, offering to tell them more about a fantastic business opportunity. The opportunity is to join the business and sell their products while recruiting friends and family to become business owners too.
And it appears that the perfect candidates to join MLM companies are women. The Direct Selling Association (DSA) states that over 77 percent of people involved in MLMs are female, with most of these being mothers. Approximately 481,000 women in the UK have signed up to an MLM in an attempt to extend their maternity leave or quit a nine to five job that they’re unhappy in.
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How big is the MLM market?
To demonstrate how large the MLM market is, let’s take a more in-depth look at three of the previously mentioned MLM businesses:
- Amway: This business was founded back in 1959 and boasts annual sales of $10.9 billion. There are over three million sales associates selling its food and beverage, wellness and cosmetic products.
- Avon: Founded in 1986, this brand has annual sales of $11.3 billion and more than 6.5 million sales associates. Avon is a direct selling company in beauty, jewellery, fashion and household categories.
- Herbalife: Herbalife was born in 1980 and since has grown to generate annual sales of $4.8 billion and have over 2.7 million associates in its portfolio. This company sells cosmetics, nutritional supplements and personal care items.
Benefits of Multi-Level Marketing
Multi-level marketing programmes entice potential business owners with ‘the sky’s the limit’ promise. The sales pitch suggests that if you work hard, there’s no limit to how much money you can make.
Just as franchise companies provide you with the freedom and flexibility that comes with running your own business, MLM companies claim to offer the same. Network marketing gives you the opportunity to work from home and work your schedule around the needs of your family. The claim that MLM companies often make is that you can work part-time hours while earning a full-time wage.
As business opportunities go, network marketing has relatively low start-up and ongoing costs. There tends to be a starter pack that is bought for a few hundred pounds and then there is a cost to attend regular team training sessions, sometimes called ‘success days’. The promise of financial freedom is available to anyone who is prepared to work hard for it.
You don’t need any experience or qualifications to become a network marketer, just the confidence and know-how to sell your products and recruit people to join the business. You also get the flexibility to work the hours you choose as well as whether you work independently or within groups with other like-minded entrepreneurs.
Also, many MLM programmes are constructed with attractive rewards. For instance, Avon representatives can earn holidays abroad and Amway offers its sales associates cash bonuses based on how they perform.
Of course, all of these benefits are also true of franchising. The franchise business model gives you the chance to invest in a tried and tested system that has a track record of success. It’s a common misconception that franchise companies are expensive to join, but there are lots of affordable franchises available for investment. In fact, many low-cost franchise opportunities can be run on a part-time basis from the comfort of your own home too.
Top 15 Multi-Level Marketing Companies in the UK
- Arbonne International
- Utility Warehouse
- Forever Living
- Simply Naturals
- Tropic Skin Care
- Vorwerk & Co
- Mary Kay
- Tupperware Brands
- Nu Skin
How do I choose a good multi-level marketing company?
Now you have an idea of some of the best multi-level marketing companies in the UK, it’s important to consider what to look for when choosing which one to join.
- People. Consider the people you will be going into business with. Will they be invested in helping you build a strong business? Your sponsor needs to be your coach and advisor, and be able to empower you as well as simply training you.
- Training Programmes. Research into the training programme that you will receive. A good MLM organisation will provide training in business, recruitment, leadership, sales and marketing.
- Compensation Plan. This refers to how you are going to get paid for your work, which is, of course, a very important factor in your decision.
The Disadvantages of Multi-Level Marketing
As well as the benefits associated with network marketing, there are many criticisms too. Firstly, there is a lot of negative stigma surrounding MLM companies. The business model is regularly compared to illegal pyramid schemes and the negative experiences people have had. Although MLM companies are not pyramid schemes, the structure of the business is similar in the fact that the founders are at the point and there is often a saturated market at the base.
Because of this negative image, there is a lot of rejection in multi-level marketing. Even if you contact everyone you know, the average network marketer will have a conversion rate of just one percent. This means that for every one person who is interested in joining your team, there will be 99 people who have said no.
It's this recruiting element of the business which makes you the money. There is little money in selling products, so your focus needs to be on recruitment. When you have people on board, you effectively become a people manager. You support them to recruit their friends and family so that you can earn money from them too.
The most significant disadvantage of network marketing is that as there are no territorial restrictions, anyone can join an MLM company. This results in competition pockets being created that saturates the market and limits profitability.
How likely are you to make money with an MLM?
Jon Taylor who is dedicated to revealing the truth about MLM, suggests that after taking into consideration operating expenses and other associated costs, 99.7 percent of people who decide to join an MLM end up losing money. To put this into perspective, for every 1,000 people who join an MLM company, only three people will end up earning more money than they spend.
This is due to the ‘pay to play’ feature which is inherent in MLM companies. As a distributor, you need to buy a certain amount of products and services to quality for the advertised commissions and bonuses, and to work your way up the different levels in the pay plan. This is often known as ‘rank advancement’. As well as purchasing the products, many MLMs expect downline participants to pay for conferences, books, training, recordings and general tools to be successful.
Buy a franchise or join an MLM company? Which is best for you?
If you’re in a position to be able to invest in your own business and are committed to making it a success, then either option could work for you. It's essential that you research both opportunities thoroughly before you make a decision.
For some, the complete flexibility and low start-up costs of multi-level marketing will appeal. The only real requirements to become a network marketer are that you need to be positive and have good people and communication skills, which are essential if you're to recruit others to join your team. There are downsides to this model, but as long as you're aware of these from the outset, you can confidently start your own business with the benefit of being fully informed.
For others, the franchise business model is the perfect solution to their business ownership dilemma. There are over 900 franchise companies in the UK which have proven business systems and offer all the training and support that’s needed to run a successful business.
Investment costs vary depending on the industry, size and location of the business but increasingly there are affordable franchises available for consideration. Not only do these affordable franchises allow a wider range of people to become their own boss, but they also tend to have lower overheads too meaning that profitability can be achieved much more quickly.
Whichever route you choose to take to own your own business, remember to do your research, and be willing to learn from those who have already succeeded.
Becky Martin, Point Franchise ©
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