Do your homework before joining multi-level marketing structures

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It’s the start of 2024 and many South Africans are looking into developing multiple streams of income to survive financially as the cost of living soars.

Multi-level marketing (MLM) structures continue to garner attention in side hustles, but what are they, and who benefits most from a profitability perspective?

Educating us on the subject matter is Gareth Collier, Director and Financial Planner at Crue Invest.

MLMs are legal business structures that are used to distribute a myriad of products. Collier said companies use an expanding network of distributors and representatives to market and sell anything from cleaning products to make-up.

What is marketed as the big income-generating option is the recruitment of additional representatives under one’s name, in that way, an individual can earn income not only from their sales but other representatives’ sales (as well as their recruitment of other reps and so on). Ultimately what you get is a pyramid-like structure, one that is very legal.

The multi-level structures do start to resemble a pyramid as you build those levels of distribution networks. However, Collier stressed MLMs remain legal, unlike pyramid schemes.

He previously explained on Moneyweb, that pyramid schemes “are a fraudulent system of making money based on recruiting an ever-increasing number of so-called investors. The initial promoters recruit investors, who in turn recruit more investors, and so on. The small group of initial promoters at the top requires a large base of later investors to support the scheme by providing profits to earlier investors. By their very nature, pyramid schemes are doomed to fail because their success depends on the ability to keep recruiting more investors. Since there are only a limited number of people in a given community, all pyramid schemes will eventually collapse.”

The nature of multi-level marketing structures is the higher up you are in the pyramid-like structure, the more profitable the system is for you. Representatives that are much lower in the chain have historically had a 95% failure rate. The Director and Financial Planner at Crue Invest said the reps on the ground of MLMs work hard, but that income is channeled up the pyramid.

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