Multi-level marketing (MLM) a.k.a Network marketing has been a buzzword in the business world, captivating entrepreneurs and enthusiasts alike.
But what exactly is it, and how does it work? In this article, we’ll peel back the layers of MLM, exploring its intricacies, mechanisms, and the controversy that often surrounds it.
The Genesis of Multi-Level Marketing
Early Beginnings
Multi-level marketing (MLM) traces its roots to the mid-20th century when innovative sales and distribution models emerged.
Initially conceived as a strategy for companies to expand their reach, MLM gained momentum as individuals realized the potential to earn from their sales and building networks.
Over the years, MLM evolved, facing both admiration and controversy, shaping a dynamic industry where success hinges on intricate compensation structures, social networks, and adaptability to changing business landscapes.
The Core Concept: How Does MLM Work?
Multi-level marketing is a strategy where companies use independent parties to distribute their products in exchange for commission and bonuses.
The independent party purchases the products from the company and resells them to customers. As an independent distributor, you can earn money in multiple ways.
You can earn money by directly selling the products to interested groups or recruiting other distributors, creating a team, and earning based on their sales.
The people in your team can also recruit people and earn money in the same way.
As a result, a pyramid structure is formed with people earning money based on sales of the recruits in the level below them.
The MLM Compensation Structure
MLM companies employ various compensation plans, such as binary, matrix, or unilevel structures.
Commissions, bonuses, and incentives are distributed based on the volume of products sold and the position of each member in the pyramid.
99% of MLM companies don’t use dollars or any other traditional currencies to determine the worth of products but points.
This why in most compensation plans when you look at qualifications, you’ll see the criteria for products sold presented as PV (Personal Volume), GV (Group Volume), or something similar.
Networking
Success in traditional MLM heavily relies on social connections.
The more robust and diverse your network, the more opportunities for sales and recruitment.
It is said by many multi-level marketers that building relationships is not just a business strategy; it’s the lifeblood of MLM.
This is why the most successful Multi-level marketers are often people with a big reach.
The Controversy Surrounding MLM
MLMs could be Pyramid Schemes in disguise
Critics argue that MLMs resemble illegal pyramid schemes, emphasizing recruitment over product sales.
This argument isn’t completely unfounded as there have been people running pyramid schemes disguised as MLM companies.
A few examples of those are Equinox International, Advocare, Vemma Nutrition, etc.
This is why some people might be wary of joining multi-level marketing companies. It’s best to learn a bit about how to spot possible pyramid schemes before joining any MLM company.
Is Multi-Level Marketing Legal?
There’s a fine line between a business being a multi-level marketing company and running a pyramid scheme.
The only real difference between an MLM and a pyramid scheme is that a legitimate MLM focuses on selling products to increase revenue.
Pyramid Schemes rely on recruiting to bring in the majority of their revenue.
According to investor.gov which is a website run by the US Security and Exchange Commission, there are 6 hallmarks for spotting a pyramid scheme.
1. Emphasis on recruiting.
2. No genuine product or service is sold.
3. Promises of high returns in a short period.
4. Easy money or passive income.
5. No demonstrated revenue from retail sales.
6. Complex commission structure.
In the majority of countries running legitimate multi-level marketing companies is legal. There are a few exceptions such as China, Vietnam, Bangladesh, and Saudi Arabia where any form of multi-level marketing isn’t allowed.
Examples of Multi-Level Marketing Companies
Multi-level marketing isn’t constrained to 1 particular niche.
There are hundreds of niches that MLM companies are in. Here are a few examples of MLM companies in wildly different niches.
1. Pruvit
Pruvit is an MLM company that sells blends that release ketones for boosting your immune system, cell repair, and energy. It’s technically in the health niche but it’s narrowed down to supplement drinks.
2. Wines of humanity
Another MLM company in an opposite niche from Pruvit is Wines of Humanity. It was founded in 2007 to distribute wine through independent distributors.
3. MWR Financials
MWR Financial is an MLM company that provides financial solutions in the form of different memberships which include financial literacy, education, mentorship programs, etc.
Is Multi-Level Marketing For You?
Statistics have shown that it isn’t the easiest way to earn money but it isn’t impossible. Before you get into Multi-Level marketing I’d ask myself these questions.
Do I like recruiting people?
Do I like selling products?
Do I like managing teams and helping them sell products?
Do I have the budget to purchase the products I need to resell?
Do I have a way to generate leads consistently?
Am I comfortable with the chance that I might lose money?
If yes, then Multi-Level Marketing might be something for you.
Conclusion
In conclusion, multi-level marketing is a complex and dynamic business model with passionate supporters and vocal critics.
Earning money with this method has statistically proven not easy so I can’t recommend everyone to join an MLM program but if you’re an expert recruiter or salesman you might have success.
Frequently Asked Questions (FAQs)
Is MLM a Pyramid Scheme in Disguise?
While some similarities exist, MLMs and pyramid schemes have distinct differences. Legitimate MLMs focus on product sales, whereas pyramid schemes primarily generate revenue from recruitment.
What Are the Key Factors for Success in MLM?
Success in MLM requires effective communication, persistence, a robust network, and a vast understanding of online marketing. Building strong relationships and staying committed are crucial.
How Does Technology Impact MLM Business Strategies?
Technology has revolutionized MLM, offering new avenues for marketing and sales. Social media, online platforms, and e-commerce are pivotal in reaching a broader audience.
Simply pitching to your friends and family nowadays can result in a loss of money due to monthly costs exceeding the earnings you’d get from limiting yourself to your social circle.
What Legal Considerations Should I Be Aware of Before Joining an MLM?
Prospective MLM participants should research the legal landscape, ensuring the company complies with regulations. Websites hosted by The US Securities and Exchange Commission and The Federal Trade Commission are excellent sources for acquiring information.
Understanding the difference between MLM and pyramid schemes is essential.
Can You Really Make Money with MLM, or Is It Just a Scam?
While legitimate MLMs offer the potential for earnings, success is not guaranteed. It is possible to earn money with MLM but it’s not likely.
I know some people who have had a lot of success with MLM but for every person that succeeds I also know 40 people that have lost money.
