Multilevel Marketing: Why It Works
Multilevel marketing, also known as direct marketing or network marketing, is one of the most popular and successful business models of all time. It is a proven strategy for selling goods and services. Existing members of MLM promote and sell their products to other individuals and bring new members into the business. Members are paid a percentage of the sales of their recruits. New recruits become the distributor’s downline, or network, and are encouraged to make sales to earn money.
Many MLM companies are legitimate, but some run illegally as pyramid schemes.
So, let's check:
What Is the Multilevel Marketing
Multi-level marketing companies use people instead of retail stores to sell products to customers. It leaves sales responsibility in the hands of an independent distributor network.
In the MLM model business, distributors are not employees of the company. Instead, they are business owners who employ their own dealer network to help sell their products. MLM companies rely on this extensive network of independent distributors to generate revenue.
How Multilevel Marketing Works
MLM companies sell products and services person-to-person sales. That means you're selling directly to others - from home, a client's home, or online.
When participating in an MLM program, the company may refer to you as an independent "participant," "distributor," or "contractor."
You can make money in two ways:
- By selling MLM products yourself to "individual customers" who are not involved in MLM
- By recruiting new distributors and earning commissions based on what they buy and sales to individual customers
Distributors are not paid when new (downline) members are registered. But the distributor is compensated by a percentage from his downline team's sales.
Many distributors with large downline teams can sell the product itself without selling it. Instead, they can earn good commissions from the sales of their downline teams. The commission system effectively motivates existing distributors to build or expand their downline teams.This will allow the company to employ more sales force and gain access to a larger customer base.
Is Multilevel Marketing Legal?
Multi-level marketing is legal in most countries. But countries such as Bangladesh, China, and Saudi Arabia banned this business model. MLMs are legitimate and legal businesses whose members make money from the sale of actual products and also from commissions on products sold by distributors that they recruit.
Multilevel Marketing Vs. Pyramid Scheme
Multilevel marketing (MLM) is controversial and is often compared to pyramid schemes. However, in essence, strategies of MLM are legal while pyramid schemes are not.
The main differences between MLM and illegal pyramid schemes are:
- Pyramid schemes focus primarily on employees seeking to recruit new members to the sales team, while MLM strategies recruit as part of a broader business strategy that also includes product sales.
- MLM systems demand a buy-back guarantee for any products that the distributor cannot sell, but Ponzi schemes have no such agreement
- MLM offer actual products or services that benefit their customers. Pyramid schemes emphasize consistent investment from new service members and encourage them to attract more people to their business.
- The MLM strategy hires as many people as possible to the sales team to sell as many products as possible. In contrast, the pyramid scheme hires as many people to the sales team as possible for the own purpose of taking advantage of the investments of the new team members.
While MLM strategies may require salespeople to purchase a minimum amount of a product, pyramid schemes require a substantial investment before a business owner can sign a contract and start working.
While MLM business practices involve research and strategies that focus on target consumers that salespeople can sell to, pyramid schemes have little or no focus on the end consumer.
In pyramid schemes, representatives only receive commissions for recruiting additional members under them.
Examples of Businesses That Use MLM
Those days, there are thousands of Multilevel Marketing companies in the world. Many of them make revenues of over $100 million every year.
Top MLM companies in 2022:
- Natura &Co
- Mary Kay
Pros of Multilevel Marketing
- passive income generation
- flexible working hours
- being own boss
- low cost of starting a startup
- collaboration with established businesses
- income growth
Cons of Multilevel Marketing
- pretty high number of scams in this area
- most distributors don't make enough money from multi-level marketing
- distributors are often rejected