I have been aware of the following report, compiled  approx. 7 years ago.

This independent report was produced by
The Trading Standards Department,
Nottinghamshire County Council, Trent
Bridge House Fox Road, West Bridgford
Nottingham, NG2 6BJ
Often the subject of enquiries and complaints
by members of the public to trading
standards departments, Multi-Level
Marketing (MLM) has for too long been
shrouded in mystery and misunderstanding.
In this article I attempt to give you the facts
about this successful, legal and increasingly
popular method of doing business, for your
interest and for the benefit of persons
seeking advice from our service.

What is it?

Also known as Network Marketing, MLM is a
rapidly expanding method of selling goods
and services which is now firmly established
in most countries of the free world. It is big
business, probably offering the opportunity
for wealth to more people than any other
form of business. Worldwide sales through
MLM are over £7,000,000 annually. 20% of
the 500,000 plus millionaires in the USA
made their fortune in the last ten years
through MLM, and the concept is being
taught at Harvard Business School in the
USA. The basic principle of MLM which
makes it different to conventional businesses
is that, instead of a manufacturer
constructing a large administrative and sales
organisation comprised of employees, self
employed distributors are encouraged to
build a sales organisation of persons like
themselves by their own efforts. Financial
rewards are paid based upon total sales of
all distributors within the organisation
developed by any particular distributor. In
such a way distributors are paid in
proportion to their efforts in selling and
sponsoring others (recruiting).
The types of goods and services available
through MLM cover virtually every area of
consumer spending: household necessities;
slimming products; perfumes; cosmetics;
books; food; property development; fitness
equipment; financial services etc.

The attractions of MLM include:

1) the
availability of a very high income from parttime
work;

2) the lack of any significant
financial or other risks;

3) for the companies;
a highly motivated sales force. Stockholding
is unnecessary and products are obtained in
response to retail orders.

We are not talking about “get-rich-quick”
schemes here, although exceptional people
may be able to do so. The vast amount of
company profits which would normally be
spent on employees, marketing and
advertising in conventional businesses, are
available instead to pass on to distributors in
commission and bonuses. The high income’s
possible are due to “residual” income, i.e.
income based upon previous efforts.
Insurance agents, writers, actors musicians
earn residual income, provided the policies
continue, the books & records still sell and so
on. So in MLM, as long as the products sell
regularly and your organisation grows, then
your residual income increases due to your
past efforts in sponsoring. “Linear” income,
i.e. a month's work, is always limited to
certain levels, whereas residual income is in
theory unlimited.

However, it must be
remembered that MLM is like any other
business in as much as high rewards are
solely the product of hard work. Safeguards
are built in to the more reputable schemes to
ensure that there are no short cuts to success
and that the cornerstone of the business
consists of retail sales to the public. Some
schemes require regular purchases by
distributors for their own use, thereby
increasing the business volume and therefore
profit of each distributor’s group. The most
stable and successful companies’ schemes are
firmly based on repeat purchasing of quality
products by satisfied customers.

Complaints & Enquiries
Most justifiable complaints relating to MLM
are caused by the overenthusiastic and
occasionally deceptive activities of
distributors who are excited at the potential
of their business. Problems are usually related
to: a) exaggerated claims about the products,
b) misleading invitations to meetings where
the business opportunity is to be presented,
c) reluctance to honour money back
guarantees given by the companies, d)
misleading information given at business
presentations and e) misleading advertising
for product sales or recruits.
Invariably, contact with the relevant
promoting company will result in swift action
against the problem distributor, who would
certainly be flouting the company's rules of
conduct in most cases. Of course there is
always the possibility that the distributor
and/or the company have committed
offences.

Common questions about MLM are:
Isn't it pyramid selling? The Oxford English
Dictionary defines the term as “... a form of
financial trickery...” Although the term is
often used to describe MLM, it is more
appropriate to reserve its use for the highly
undesirable and now illegal schemes which
surfaced in the early 1970’s where
participants were required to pay large sums
to enter schemes and were encouraged to
purchase large consignments of goods - the
larger the quantity the bigger the discount -
before ensuring that they had the customers
and the additional participants to supply
them to. Naturally, many people were left
considerably out of pocket with vast stocks of
unsold product.

“Won't it saturate?” The Department of
Trade and Industry in an advisory leaflet
describes how, within six months there could
be 67,000,000 distributors in any one
scheme. This is fine in theory, but a dubious
statement when some facts are considered:
a) the largest MLM company in the world has
steadily been expanding for 30 years and its
UK distributors number less than 1 in a 1,000
of the population; b) the UK birth rate is
many times higher than the rate of increase
in numbers of distributors in any major MLM
scheme; c) saturation of any particular area
is unlikely due to the facility of being able to
sponsor persons living anywhere in the UK
(or internationally in some cases) without
undue difficulty and d) it has never yet happened. “

Is it better to get in at the
start?” Again the DTI says yes but I am not
sure that this is correct. Following on from
the arguments above, there will always be a
certain proportion of the population which
want to participate in any particular scheme
and because of the dynamics of populations
I suggest that it is no more difficult to find
prospective distributors or customers at a
later stage of a scheme than it is at the start.
It is also true that some of the most
successful distributors started their businesses
very recently in terms of the age of the
companies concerned. It is possible that a
prospective distributor may be better off
dealing with an established, stable and
financially sound company than a brand new
one.

Legislation
Apart from legislation covering many aspects
of specific products, Part XI of the Fair
Trading Act 1973 and regulations thereunder
govern certain aspects of the operations of
MLM schemes.
Most of the larger companies schemes come
within the scope of section 118 of the 1973
Act and are therefore obliged to operate
within the rules set down in the Pyramid
Selling Schemes Regulations 1973 and in
Section 120 of the Act. These requirements
are directed principally to providing full
details of the schemes and the rights of
participants to any prospective distributor
and to the avoidance of the undesirable
aspects of “pyramid selling”, e.g. payments
or rewards based upon matters other than
completed retail sales.
A review of the current legislation by the DTI
has been proceeding for a number of years.
This may result, among other matters, in
restrictions upon schemes where sales to
distributors are given more prominence than
sales to the public.

Finally, what advice can be given to a
prospective distributor who wants to know
whether to join an MLM scheme? I suggest
the following:
Look at some of the numerous other MLM
companies besides the one that you are are
being asked to join. Compare the quality,
range and price of the products and the
different marketing plans of each company.
Then ask yourself these questions:
(1) Would you buy the products yourself?
(2) Are you satisfied with the integrity and
stability of the company and the
marketing plan?
(3) Are you willing to put in a significant
amount of consistent effort?
If all three answers are yes, there is a lot of
money waiting for you, so get started. If you
are less sure about the answer to No. 3
consider making a small income by selling
only or even joining up solely to obtain
product for your own use at less than retail
price.

Further information and company details can
be obtained from the Direct Marketing
Association, of which most reputable
company's are members.