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.

What are multi-level marketing structures? 

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.

Difference between pyramid schemes and MLMs 

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.”

There’s a 95% failure rate for MLM reps 

 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.

Considerations to make before joining an MLM

Ask yourself the following questions:

• Does the company stress sales or recruiting?
• Does the company meet ethical requirements?
• Is there a big demand for the product?
• What is the quality of the product?
• How much competition is there?
• How much must you invest upfront?
• What happens to unsold inventory? How are you going to exit?
• Do you fully understand the business model and cost structure?
• Does it sound too good to be true?

How to approach side hustles in 2024 

Concerning side hustles in general the advice is to look at unique skills that you have and identify ways to make money from those skills. This includes sharing expert advice on YouTube or via blogging or availing your unique skills online via freelance platforms.

OFM Business Hour dg