Is N2 Publishing a Multi-Level Marketing (MLM) Company?

By Claire Barham Jul 03, 2018

It’s time for some real talk. Is N2 a Multi-level Marketing (MLM) business? Is N2 a pyramid scheme? A scam? Many companies faced with such theories about them would shy away, hoping the “haters” grow tired and the allegations fizzle out. But at N2, we view this as a teaching opportunity – the chance to dive into what an MLM actually is, and most importantly, why we’ve never been one (and never will be).

So here’s the truth about MLM and N2 Publishing...

What is Multi-level Marketing?

“MLM is the direct descendent of classic, no-product pyramid schemes. With expansive pay plans and an endless chain of recruitment, MLM assumes both infinite and virgin markets – neither of which exists. MLM is therefore inherently flawed, uneconomic, and deceptive.”

Jon M. Taylor, formerly of the Consumer Awareness Institute

In the case of recruitment-driven MLMs, most of the commission from actual product sales goes to those at the very top (known as top-of-the-pyramid promoters, or TOPPs). So it’s no surprise their focus is eventually solely on recruitment. And because earnings flow from those “at the bottom” (aka, the newest salespeople) to those at the top, this is technically a money transfer scheme – no bueno, to put it lightly.

According to Taylor, approximately 99% of MLM participants end up losing money – a stat far worse than most casino games. And for the very few who “succeed” (in other words, are able to make any amount of money whatsoever), they have to constantly recruit others to replace the many people who they bring on but don’t ultimately make it.

So for MLMs, there’s no real focus on the product or service for sale. The focus is on recruiting others to “join your team,” and those who do recruit others consistently make commission on new products their recruits purchase to sell to others.

Let’s dive into the defining characteristics of an MLM, as outlined by Taylor, and do a little comparison against how we run our business at N2.

1. “Each person recruited is empowered and given incentives to recruit other participants, who are empowered and motivated to recruit still other participants, etc. – in an endless chain of empowered and motivated recruiters recruiting recruiters – without regard to (de facto) market saturation.”

As a company with eyes set on growth, the practice of dipping into your team members’ connections to find potential fits for openings is certainly not unheard of. After all, you love your team members (we hope), and it’s highly likely they know people with a similar attitude and work ethic. It’s also commonplace to incentivize your people in some way to introduce the company to all-star talent. But the kind of incentives matter – will the person continually benefit financially from the recruit’s work performance? At N2, we do encourage our team members to introduce us to people they think may fit our award-winning culture and may be able to fill an opening we’ve already determined exists. If the person they refer successfully launches a publication and hits their sales goal, we express our thanks by giving the team member a reward. But they earn no compensation based on the future performance of their recruit, nor are they incentivized if the new team member then introduces someone else to N2.

Another important differentiator between N2 and MLM schemes is our predetermined, thoroughly vetted locations to be filled. We serve well-established, affluent neighborhoods in the U.S., and communities must meet strict criteria to make our list of potential openings. We’ve had our eyes set on certain communities, and we’ve worked to fill those openings during the last 15 years. Right now we have a few hundred additional communities on which we’d like to focus. If one of our team members – whether an Area Director or a corporate employee – knows someone fit for the role who passes our vetting process (and lives out our culture), we’ll happily consider ‘em! The goal is to fulfill a need with the openings we currently have, not to recruit for the sake of recruiting.

2. “Advancement in a hierarchy of multiple levels of ‘distributors’ is achieved by recruitment, rather than by appointment.”

In layman’s terms, in an MLM, people are promoted based on the number of recruits they get (and how many recruits their recruits get, and so on) instead of based on more typical performance factors. Naturally, those who join the company the earliest and are able to build up recruits (who then recruit others, etc., etc.) will achieve the highest stature.

At N2, promotions are given based on consistent achievement, loyalty, and cultural fit – and the number of people a team member introduces to N2 in no way contributes. Fun fact: The N2 Area Director who has introduced us to the most candidates through their personal network holds no leadership role within the company.

3. “‘Pay to play’ requirements are met by ongoing ‘incentivized purchases,’ with participants the primary buyers.”

For MLMs, participants must purchase inventory in order to sell it. But the pressure doesn’t stop after the initial purchase. MLMs push additional purchases onto participants, claiming it’s to improve their business opportunity (thus increasing commission sells to the participant’s higher-ups).

At N2, our Area Directors do not purchase any products and hold no “inventory.” Area Directors are legally franchise business owners. The vast majority of franchise opportunities have a franchise fee at the onset – which is completely legal and the industry norm – but we don’t even require this of our Area Directors. The only “investment” ADs must initially make in the business is their time and sweat equity. And in turn, N2 invests many hours in our new team members through our three-day training program, weekly sales calls, one-on-one calls with leaders in the field, annual Conferences, and more. So we are just as invested in the success of our salespeople as they are.

4. “The MLM company pays commissions and bonuses on more ‘distributor’ levels than are functionally justified; i.e., more than five levels.”

“Distributor” levels is a little confusing, but what it means is levels of hierarchy like national sales leaders, regional sales leaders, district leaders, branch leaders, etc. If every leader makes commission off of the investments and sales of the people below, it makes sense that those at the very top will earn way more. The common practice with MLM companies is to add unnecessary levels of management into their hierarchy tree just to create additional high-paying roles – and this is tricky because it gives participants a false sense of hope that they’ll achieve those levels.

As a national sales organization, N2 has only three tiers of sales leadership – a national sales manager, Region Directors (RD), and Sales Directors (SD). Just like every N2 Area Director, our RDs and SDs run their own publications, but have taken on a leadership role in addition to this based on their tenure, performance, cultural fit, and passion for supporting others. It’s important to note N2 sales leaders do not earn commissions based on the performance of the Area Directors they mentor!

5. “Company payout (in commissions, bonuses, etc.) per sale for the total of all upline participants together equals or exceeds that for the person selling the product – resulting in inadequate incentive to retail and excessive incentive to recruit.”

In recruiting-based MLM programs, leaders several tiers above the actual salespeople often make just as much, if not more, in earnings per sale than the person who actually sold the product – now that’s c r a z y! The salesperson may only take home a commission of 5-15%. In healthy sales organizations, it’s not uncommon for a successful salesperson to earn more than their managers. This is certainly the case at N2, where many of our top earners are Area Directors who hold no leadership role. That’s right – many of them bring in more income than their leaders!

There you have it: The truth about Multi-Level Marketing (in large part thanks to the late Jon Taylor of the Consumer Awareness Institute) and the non-MLM sales program here at N2 Publishing. Yes, we are a national sales organization. Yes, we do interview candidates recommended by our team members (just like we’d interview them without this connection) and sometimes they do become part of the team. But at the heart of N2 is a very real product that turns neighborhoods into communities, and a very real opportunity for Area Directors to earn generous commission based on their sales performance – not on recruiting. And that’s the truth about N2 Publishing.

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