Part of the guide: Network Marketing Lead Generation
There are two kinds of network marketing companies, and from the outside they can look identical. Same slick app. Same rank chart. Same room full of people clapping. The difference is not the energy in the room. It is where the money actually comes from.
In a customer-first company, revenue comes from people who buy the product and would keep buying it whether or not a check was attached. In a recruitment-driven company, revenue comes from people buying their way into a position, and the person above them getting paid on that buy-in. One is a business. The other is a compensation event wearing a business costume.
I have been around this industry part-time since 2002, more than twenty years now, and I have watched good people pour years into the second kind because nobody ever handed them a clean way to tell the two apart. So here is that way, step by step. Walk any opportunity through these and the fog clears fast.
In this guide
- Step 1: Ask who buys when the check disappears
- Step 2: Follow the money to the payment moment
- Step 3: Ask for the reorder rate from non-distributors
- Step 4: Read the compensation plan for what it rewards first
- Step 5: Check what happened when a regulator actually looked
- Step 6: Watch the language, because it leaks
- What to do with all this
Step 1: Ask who buys when the check disappears
Start with the only question that matters. Imagine the compensation plan vanished tomorrow. No commissions, no ranks, no bonuses. Would anyone still buy this product?
If the honest answer is “yes, plenty of people, because they actually want it,” you are looking at a customer-first company. If the honest answer is “well, most of our volume is distributors buying to stay qualified,” you have found a recruitment-driven one, no matter what the slides say.
This is not just my opinion. It is essentially the test the Federal Trade Commission applies to the entire industry. The FTC’s own guidance is blunt: a legitimate MLM’s revenue must come from sales to real end users — people outside the sales force who buy because they want the product — not from recruitment or from distributors loading inventory to hit a bonus. Read it in their own words in the FTC’s business guidance on multi-level marketing and pyramid schemes. That page is your first primary source, and it is free.
Step 2: Follow the money to the payment moment
Dashboards lie by omission. A green number that says “sale” looks identical whether it came from a real customer or from someone buying a starter kit to unlock a rank. Same transaction, same payout, same celebration.
So do not look at the total. Look at the reason for each payment. Money that moves because someone wanted the product is a real market. Money that moves to unlock a position is a subsidy the company is paying itself and calling revenue. This is the same trap I wrote about in the complexity trap and the real-customer question — companies that measure enrollment instead of demand and then wonder why growth never turns into stability.
The place this shows up most clearly is the reorder. Which brings us to the next step.
Step 3: Ask for the reorder rate from non-distributors
Here is the single number that settles the argument, and here is why most companies will not give it to you.
Ask this: of your total product volume, what percentage comes from customers who are not enrolled in the compensation plan, and how often do they reorder without being prospected?
A customer-first company can answer this and is often proud to. A recruitment-driven company will change the subject, quote you a “customer” number that quietly includes distributors, or tell you that number is proprietary. The dodge is the answer.
A real customer who reorders on their own has voted with their wallet. A distributor who “buys” every month to stay active has voted with their fear of losing rank. Only one of those is a durable business, and the FTC has spent decades making that exact distinction the legal line.
Step 4: Read the compensation plan for what it rewards first
Get the actual comp plan document, not the stage version. Then ask a simple question of every bonus: does this pay me for selling product to a customer, or for enrolling a person?
You have been paid late before
You have watched the number on the dashboard not match the number in your account. What is different now is simple: it settles on a public contract you can check yourself, not a dashboard I control.
Read the contract →Most participants earn little to nothing. No income is guaranteed. You can verify every payout on the public smart contract.
The pyramid test the FTC leans on, drawn from the Koscot case, asks whether participants are paid primarily for recruiting rather than for selling product to ultimate users. When the biggest, fastest, most-celebrated money in a plan is tied to enrollment and rank advancement rather than to product moving to real customers, the plan is telling you what it values. Believe it.
This is also where you separate a hard-but-honest business from a rigged one. A customer-first plan can still be tough. It just cannot be built so that the only realistic way to profit is to recruit faster than the people below you.
Step 5: Check what happened when a regulator actually looked
You do not have to run this experiment yourself. Regulators have run it for you, and the results are public.
When Herbalife settled with the FTC in 2016 for $200 million, the core remedy was not “stop growing” or “change your products.” It was “prove your sales are real retail demand and track it.” Read the FTC’s own announcement of the Herbalife settlement. That is your second primary source. The remedy is the whole lesson: the government did not care about the enthusiasm or the ranks. It cared whether there was a customer.
Apply that lens to any company you are evaluating. If a regulator walked in tomorrow and demanded proof of end-user demand, could the company produce it? If you cannot imagine them producing it, you already know which kind you are looking at.
Step 6: Watch the language, because it leaks
Recruitment-driven cultures talk about people as volume. “Get three, who get three.” Customer-first cultures talk about the product doing something for someone who is not on the team. Listen for which vocabulary dominates the training.
Watch for the tells I keep a running list of over on MLM red flags: pressure to buy inventory you cannot personally use, income claims with no typical-results disclosure, “customers” who are all distributors, and a culture that treats every objection as something to overpower rather than answer. If recruiting is the whole conversation and the product is an afterthought, the language has already told you the truth. It is the same pattern I traced in how the old MLM playbook bought crypto and a prediction market — the costume changes, the recruitment engine underneath does not.
What to do with all this
None of this means network marketing is a scam. It means the label on the box does not tell you what is inside — you have to check. A customer-first company survives these six steps without flinching. A recruitment-driven one starts dodging around step three.
If you are building, build on the side that answers honestly. Sell things real customers want and would reorder without a check attached. That is the whole game, and it is also the version of the business you never have to be nervous about when a regulator, a journalist, or your own conscience starts asking questions.
If you want a grounded starting point instead of a hype reel, start here and take it one honest step at a time.
In Prosperity,
David Wood
P.S. Run your own opportunity through step three today. Ask for the reorder rate from people who are not in the comp plan. Whatever answer you get — a real number, a dodge, or an awkward silence — tell me about it in the comments. That single response tells you more than any presentation ever will.
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Step 3 asks me to request the reorder rate from non-distributors. I work nights and barely have energy to ask my upline what time the call starts. Good test. Not sure I have the fight left to actually run it.
Nia, I asked my upline the reorder-rate question on a Tuesday afternoon in February. Got a real answer back that same evening, with an actual percentage attached. The response time told me more than the number itself did. If it takes someone a week to answer, that’s the dodge this post is describing, energy or not.
Nia, thirty years in this and the tired ones were always the sharpest judges of a bad opportunity, not the rested ones. You don’t need the energy to run Step 3. You just need to notice whether your upline answers in under a minute or changes the subject.
Step 6 talks about listening to training in a room, but I’ve never sat in on a call or a meeting for any company I’ve researched. Everything I’ve evaluated came through written scripts and email sequences. The tell is the same though — count how many paragraphs describe the product doing something for a stranger versus how many describe the rank chart.
Anneke, I think what’s being missed here is that your point actually strengthens the post rather than undercutting it. The tell David describes, product-for-a-stranger versus rank-chart language, shows up just as clearly in writing as in a live room, maybe more clearly, because there’s no charisma in the room to disguise it. A written script is easier to audit than a presentation you only saw once and half-remember.
Ade, agreed, and I’d go further from the corporate side of this. Every restructuring plan I ever sat through as a director had a written script long before it had a live meeting, and the written version was always more honest, because nobody had to perform it out loud in front of a room that might push back. The moment a company puts its pitch in writing, the actual ratio of product-benefit-to-stranger versus rank-chart-language becomes something you can literally highlight in two colors and count. I’ve run that exercise on our old sales onboarding documents for my own amusement since leaving. It’s a genuinely useful diagnostic well outside network marketing entirely.
The six steps here map neatly onto an exercise I use with clients evaluating any opportunity, not just MLM: write down the three things you were told in the first meeting, then go back a week later and count how many were about the product versus about you. Most people are stunned by the ratio once it’s on paper instead of in memory. What would your own ratio look like if you wrote it down today?
One small correction: the pyramid test most often cited from Koscot concerns payments for recruitment itself rather than for sales, but the case that actually established the retail-sales requirement for MLMs specifically was FTC v. Amway in 1979, not Koscot. Worth getting the citation right since people will go look these up. The substance of Step 4 stands regardless.
The best case for not worrying which exact case established which principle: for someone deciding whether to join something next month, the citation trail matters less than whether they actually go ask their own upline the reorder question tomorrow. Priya’s right to want the record straight. I’d just hate to see anyone use the correction as a reason to skip Step 3 itself.