Is MLM illegal ?

Is MLM illegal? The answer is a huge big “NO”. If MLM is illegal, then companies like Tata, Reliance, Birla, Hindustan Lever, Amazon, Flipkart, Microsoft, Apple, Samsung, IBM, etc. are all illegal. All of these companies have some kind of MLM in their distribution structures.

What is MLM? MLM stands for Multi Level Marketing.

First let us understand SLM. SLM stands for Single Level Marketing. When I manufacture and sell something entirely by myself directly to my customers, then that is SLM. For example, let us assume that I sell cakes directly to my customers from my own shops situated in various localities in my own city as well as other cities. The staff in my bakery and my various shops and branches are my own and I have not given any distributorship or franchise to anyone else. Then this is SLM or Single Level Marketing.

Multi Level Marketing

Now, let us take an example of Multi Level Marketing. A top-ranking MNC manufactures high-quality daily-use FMCG products. They sell these products to various stockists in various parts of the country. The stockists sell these products to various distributors. The distributors sell the products to retailers, who finally sell the products to end-users or end-customers. The stockists, distributors, and retailers and their families also use some of the products just like the end-customers. Moreover, at each stage the price of the product goes up. Thus, the manufacturer may be selling a product to a stockist at Rs.10/-, the stockist may be selling the product to a distributor at Rs.15/-, the distributor may be selling the product to a retailer at Rs.20/-, finally the retailer may be selling the product to an end-customer at Rs.25/-. This is a rather simplistic theoretical example. In the practical world, distribution and other costs, like advertisement, transportation, taxes, etc., are many times more than manufacturing costs. Thus, if it costs Rs.10/- to manufacture a product, the cost to the end-customer may easily become Rs.50/- or more.

Single Level MarketingIn the example above, we can see that for a single manufacturer, there are a number of stockists, for each stockist there are a number of distributors, for each distributor there are a number of retailers, and for each retailer there are a number of end-customers. If we collapse all the levels between the manufacturer and customers, whereby the manufacturer sells directly to his/her customers, then this becomes Single Level Marketing (SLM).

Looking at the two models above, it can be theoretically assumed that SLM reduces costs for the end-customer. Yes, removing 3 or more levels in an MLM model can reduce end-customer cost by over 50%. But, the flip side is that, operating all by himself/herself, the manufacturer can only reach or cater to a limited number of customers. In today’s world, merely selling a product is not the end of the process, providing support and allied services are also part of the same process. Most of these support and allied services are fixed cost, not variable cost. This means that, with a limited number of customers, the fixed cost per customer will go up. In an MLM model, all of that gets distributed to the various levels. Each person at each level takes responsibility for a specific group of tasks, and all of these people combined are able to cater to far larger number of customers. With more customers, the fixed cost per customer actually comes down. In today’s world, monetary cost is associated with quality, satisfaction, trust, loyalty, etc. If you had the choice of buying the same product from a small XYZ company and Amazon, who would you buy from? Now, if you assume that the same product will cost more at Amazon, think again. With their huge customer base, Amazon and the same suppliers are able to offer bigger discounts than XYZ company. And, if you think Amazon is not part of a multi-level-marketing model, think again. Let us assume you want to buy a HP laptop from Amazon. Look at the diagram of a typical Amazon distribution model and you will understand why Amazon also is part of an MLM chain between HP and its end-customers.

So, then why this so-called controversy regarding MLM? Why do some people get upset when they hear MLM? Why are they so quick to label MLM as illegal? There are various reasons for this, but most of it is ignorance or half-baked knowledge of the term MLM. Many people wrongly confuse MLM with a combination model of MLM and SLM.

Let us take the example of some top-ranking insurance companies, such as Tata, Birla, Kotak, ING, PNB, etc. These are private insurance companies which provide very high quality insurance products to customers in India. Most of these companies have tie-ups with foreign companies, and follow their business plans and models. These companies are also very highly regulated by various government agencies like the IRDAI, RBI, SEBI, etc. so that their customers, the general public of India, are not misguided or cheated in any way whatsoever. These companies also use a MLM model for recruitment of agents and sale of their products. While the insurance company has its own full-time employees, comprising of operations, accounts, marketing, legal, etc., the most important task of recruiting agents, building sales teams, selling insurance products to individual customers, all lie with private individuals who are not employees of the company. These Agent-Leaders (actually Team Leaders) work entirely on a commission basis. They have no fixed monthly salary; even if they do it is very very temporary and totally dependent on their performance within a 3-6 month period. If there is a sale or multiple sales by themselves or by others in their team in a particular month, then they have an income, otherwise their income is zero in that particular month. What is a sale? It is a sale or purchase of an insurance product to or by themselves, or their family members, or to their team members, or to family members of their team members, or to customers who are not their family members. Most of these insurance companies allow recruitment (team building) to unrestricted or unlimited levels, but pay commissions only up to a certain number of levels, typically 3 levels. Thus, Mr. A can recruit Mr. B, who can recruit Mr. C, who can recruit Mr. D, who can recruit Mr. E, and so on and on and on; but Mr. A will earn commissions only on the sales of Mr. B, C, and D, no more. Of course, Mr. A will not recruit Mr. B only; he will recruit Mr. B1, Mr. B2, Mr. B3, and so on. Thus, there is a concept of width as well as depth in MLM. You cannot have depth only or width only; you need both width and depth. Your MLM team must be both fat and tall. A fat team (width) will give you a big income, a tall team (depth) will give you long-term income security.

Note: We have been using Mr. here for exemplary purposes only. Recruitment is not restricted to Mr. only, it could be Mrs. or Ms. or Miss also, so long as the person is an adult with the proper qualifications. In fact, it has been found that it is mostly ladies of all ages who are hugely successful in MLMs and other commission-based incomes; maybe women value their flexi-time, freedom, and self-dependent spirit more than men.

As can be seen in the above example of insurance companies, recruitment is allowed to unlimited levels but commissions are paid only up to 3 levels. This is not pure MLM; in pure MLM commissions also are paid up to unlimited levels. To understand this, let us take the case of Amway. Ranging from toothpaste and toothbrush to household cleaning items to nutritional supplements to air purifiers, etc., Amway products are manufactured in top-quality facilities with very high manufacturing standards. In fact, not only are Amway manufacturing facilities amongst the topmost in the world, with all kinds of government licences, and industry and academic awards, patents, etc., people who use Amway products are literally die-hard fans of Amway. Now, Amway decided way back in 1959 that they would not follow the conventional system of distribution. There would be no middle-men, no stockists, no distributors, no wholesalers, no retailers, etc. Amway would sell directly to the customer as in a SLM system, also known as DDS or Direct Distribution System. However, the cost of the product would not be marked down; in fact, the cost of the product would be such that the MRP (maximum retail price) would be the same as in a conventional distribution system. Thus, a product manufactured at Rs.10/- would not be sold to the customer at Rs.10/- or Rs.11/- or Rs.12/-, rather it would be sold at Rs.50/- as in a conventional system. Now, what would Amway do with the extra Rs.40/-. This Rs.40/- would be distributed back to the customer according to a reimbursement plan if the customer introduced more customers. Of course, the plan would have to be fair to all and extremely transparent, otherwise the general public would not participate. To understand the details of the plan, please see the post on Long-Term, Multi-Generation, Secure Income Opportunity with Zero Investment. Obviously, this plan has been so successful that it is now being taught in management courses worldwide. Amway is today the No.1 in MLM with a presence in more than 80 countries and territories of the world, and with a global turnover in 2019 of more than US$ 8 billion (that’s more than Rs.58,650 crores). Turnover in India at that time was more than Rs.1,900 crores. Obviously, this goes to show that MLM is not illegal.

However, this success is not without its drawbacks. There is a lot of fake and unverified news and reports that MLM is illegal, MLM companies are banned, etc. This is due to a number of reasons, the two main ones being:

  • Person to person (natural market) interaction. Almost all novice marketers tend to tap and practice on their natural markets first. This natural market comprises of friends, relatives, close associates and acquaintances, etc. While this is the easiest way to start or practice marketing, most people do not like to be approached by their close friends and relatives to purchase products or join an income opportunity. This leads to an adverse or negative opinion of the company. Such people then start to spread false or negative information, not about their friends or relatives, but about the company. In today’s world of social media, such negative information spreads very fast, so much so that there is much more negative propaganda than positive facts. Hence, those companies which continue to survive and grow, in spite of such negative impacts on their reputation, are definitely worth associating with. So, next time you want to denigrate a particular MLM company, think first about how that company has survived for so long and how that company has survived. Face facts, a great man once said “you can fool all of the people some of time, you can fool some of the people all of the time, but you can’t fool all the people all the time.” MLM companies like Amway, Tupperware, Avon, insurance companies, etc. have been in existence for over 50 years, some over 100 years, and have grown to cater to millions of people in so many countries of the world. How can they be illegal or improper?
  • Pyramid Schemes. Due to the success of genuine MLM companies, some people come up with get-rich-quick schemes. In such schemes, there are no products for customers. The only activity is to join by paying a certain sum of money, and then getting others to join in the same way. As each new person pays his/her joining fees, that sum of money gets distributed between the company and a certain number of upline recruiters. For example, Mr. A joins a certain company by paying Rs.5,000/-. He then gets Mr. B to join by paying the same sum of Rs.5,000/-. As soon as Mr. B pays his Rs.5,000/-, the company gets Rs.1,000/-, Mr. A gets Rs.1,000/-, and then 3 more persons above Mr. A get Rs.1,000/- each. Now, Mr. B gets Mr. C to join. As soon as Mr. C pays his Rs.5,000/-, the company gets Rs.1,000/-, Mr. B gets Rs.1,000/-, Mr. A gets Rs.1,000/- and 2 more persons above Mr. A get Rs.1,000/- each. So, if Mr. A gets 5 persons to join under him, he will earn Rs.5,000/-. If those 5 persons get 4 persons each to join (total 20 persons in Level 2 from Mr.A), Mr. A will earn Rs.20,000/-. If those 20 persons in Level 2 get 3 persons each to join (total 60 persons in Level 3 from Mr. A), then Mr. A will earn Rs.60,000/-. Each person only pays a joining fee but does not get any product or service in return. Sometimes, some such companies claim that you are paying the sum of money for a vague product or service, something that you will not make use of anyway like a vague website or recruitment portal or a digital currency account. Such schemes are referred to as “pyramid or Ponzi schemes” and these are definitely illegal. “A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the schemes unravel.” (Ref: In the case of Amway, Tupperware, Avon, insurance companies, etc. there are no joining fees. Every single penny paid to the company is for a definite and useful product or service. Even if you join and do not or can not get anybody else to join, even if you are the last person in the chain, you can still continue to purchase high quality goods or services from genuine MLM companies. Unfortunately, most people confuse pyramid schemes with genuine MLM and are unable or unwilling to differentiate between the two for their own vested interests. Very simply, whenever you pay any money to any company, MLM or non-MLM, ask yourself what you are paying for: is it only for joining or are you paying for useful goods and/or services? If you are not getting useful goods or services in return for your money, then it is a pyramid or Ponzi scheme.

In short, MLM is not illegal. Face facts, only a few people are capable enough to achieve long-term and stable success in business or profession, only a few people are capable enough to get and continue to shine in their fantastic and secure dream jobs, but everyone, qualified and unqualified, smart or unsmart, has a fair chance at building a small MLM team which can continue to give them a decent and growing income month after month, year after year, generation after generation. MLM is not a one-person activity, it is team work and a team is the only path to secure long-term and growing income which will continue to come in even when you stop working because your team will not stop working.

First light your own candle from your recruiters candle, then use your candle to light other peoples’ candles. As your people continue to light other candles, the light around you will continue to grow even when your own candle burns all the way down. It’s a very simple and natural process, just like life. You are in this world with your siblings, relatives, etc. only because your forefathers have continued to grow. Life itself is a natural MLM, and that cannot be illegal ! Click here to find out how you also can get a share of the world’s No.1 multi-billion dollar MLM !!!-

Leave a Comment