The Truth Behind MLM Front End Loading

“Beware of the practice of front loading products and inventory”

Front loading is an illegal practice whereby a new distributor is required to purchase large volumes of product up front in order to qualify for a pay plan incentive — essentially pushing the distributor to becoming a warehouser of months worth of product which may or may not ever be sold to a customer. There are many variations of the practice, but the key thing to remember is that the practice is illegal and if you see such a requirement in any network marketing opportunity or model that you are evaluating, consider it a very strong red flag.

There are many, many network marketing and home business opportunities in the world. Many walk a fine line in terms of being “legal”, but still effectively continue to front load their new distributors. Realize that not every “legitimate” business opportunity is necessarily a feasible one. And at times, you will come across companies which fall into a grey area where the business is legal by FTA (Federal Trade Association) standards, but nonetheless unethical in business building.

Knowing the truth about an opportunity is the first step towards making an informed decision and preventing yourself from making a costly mistake. Above all, you must understand the concept of front loading and why you must be careful of front loading companies.

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Front loading warning signs

Front loading means there is a high entry level cost of inventory to join a network marketing opportunity. How high the entry level or starting investment required for the inventory varies from company to company.

Of course, investing in a lot of inventory or getting your downline to invest in inventory is not wrong per se. The problem is not with the amount of the inventory but how you manage your business with regards to the product.

For example, if you are required to invest $75 to $200 in order to start a business this is considered low entry level. But if you are required to invest $30,000 in product and inventory in order to gain a significant advantage over the $75 entry level, then this is a clear warning sign and you should carefully consider the consequences of the high investment.

Consider how many customers you will need to enroll to consume the inventory you’re buying. How long is it likely to take you to attract that many customers? Can you afford it? Would it require you to cut off an arm or a leg or take personal loans in order to finance your business?

There’s nothing wrong with financing your business, so long as you are able to manage the carrying costs and you have a reasonable plan and timeline in which you expect to recover your investment. If you succeed faster, that’s good. If you fail, then what happens next?

Also ask yourself whether a lower entry cost level implies there is virtually no way for you to succeed in the company as compared to a high entry level? This will partly depend upon your own income goals.

If the company requires every single distributor to front load, then you have to be careful. You must realize that a plan than runs on high volume and very little repeat sales is a company that isn’t likely to be sustainable once they reach the ‘tipping’ point.

By the same token, would you be able to make full use of the products or are you merely investing in the products just to get a higher ‘rank’? You have to be discerning here. Here’s a good litmus test: if the company shuts down next month, is your first instinct the desire to find out where else can you get more of this product, or is it instead how quickly can you get rid of the products in order to cover your investment?

These are important questions to consider but as a general rule of thumb, beware of any companies that require or encourage high front end loading of products and inventory.