What Is Multi-level Marketing (MLM)?

What Is Multi-level Marketing (MLM)?

Multi-level marketing is the marketing strategy in which a direct sale company compensates its salespeople not only for the sales they generate but also for the sales of other people they recruit. This recruited sales force is referred to as participants or downline and can provide multiple levels of compensation.

The structure of MLM companies varies widely. Some have a single level of compensation, while others have multiple levels. The most common is the pyramid-shaped MLM company. In these companies, participants at the top of the pyramid recruit other people to join the program. When someone new joins the program, they start at the bottom of the pyramid.

Multi-level marketing is also called as network marketing and is a way of selling products or services through a network of distributors. The distributors are called participants, and they earn income from the sales they make as well as from the sales made by the people they recruit to join the network, called their downline.

Multi-level marketing, also called network marketing or pyramid selling, is a type of sales where companies make money from a non-salaried workforce that sells their products or services. The participants’ earnings come from a commission system that’s shaped like a pyramid or binary structure.

The people who recruited them then receive a commission on their sales. This process continues until someone reaches the top of the pyramid, at which point they stop recruiting new people and instead earn a percentage of all sales made by participants below them.

Key takeaways

• Multi-level marketing is a type of sales where direct sales companies make money from a non-salaried workforce that sells their products or services.
• MLM business model is also referred to as network marketing or pyramid selling.
• The participants’ earnings come from a commission system that’s shaped like a pyramid or binary structure.
• Multilevel marketing companies vary widely in terms of their structure. Some have a single level of compensation, while others have multiple levels.
• The pyramid-shaped MLM enterprise is the most typical form of Multi-level marketing business.

How does Multilevel Marketing Company work?

The working of MLM depends on the structure of the enterprise. The participants or distributors sell products or services door to door or through a catalog. They earn a commission on their own sales as well as on the sales of other members of their downline, typically through a hierarchy of levels.

The participants are usually expected to recruit more people into the scheme in order to earn more commission. The people at the top of the hierarchy usually make the most money, while those at the bottom make less.

Multi-level marketing is a controversial business model, with some people calling it a legal form of pyramid scheme and others asserting that it is a legitimate way to sell products and services. All in all, companies using this business model need to be very careful in order to avoid being accused of operating illegal pyramid schemes.

Understanding MLM – Meaning of Multi Level Marketing

Many businesses rely mainly on sales to generate revenue, and one legitimate way to do this is through multilevel marketing.

Usually, in multi-level marketing programs, participants can receive compensation from two different revenue streams as there are two types of commissions that a seller could receive: one from selling the product or service, and another from getting other people to sell it. The commission received is based on either their sales or the wholesale purchases made by those they recruited.

Downline distributors are those recruited by the original participants, as well as anyone else that they recruit. This refers to the organizational hierarchy in MLM businesses.

So, expanding upon the preceding discussion, it’s not uncommon for MLM salespeople to sell products directly to end-user retail clients using relationship referrals as well as word-of-mouth ways of promoting products. However, they are rewarded for bringing others as fellow salespeople and empowering the company’s distribution chain. This makes them the downline distributors in the organizational structure of Multi-level marketing businesses.

The Federal Trade Commission website published a report that analyzed the business models of 350 MLM companies in America. The study found that at least 99% of people who join an MLM company will lose money.

However, MLM companies continue to operate under the guise that participants can achieve large returns, even though this is statistically improbable. Because MLM businesses are simply variations of conventional pyramid schemes, several jurisdictions have outlawed or otherwise tightly controlled them.

Is MLM Legal?

Multi-level marketing companies business model is for sure a controversial one, with some people calling it a legal form of pyramid scheme and others asserting that it is a legitimate way to sell products and services. The legality of MLM depends on the structure of the enterprise. In general, the term network marketing or multilevel marketing refers to a type of sales approach in which individuals in a firm are incentivized to bring new people into the business. This salesperson gets a percentage of their recruiter’s profits once they’ve been recruited. Furthermore, each salesperson earns a commission from the sale of products. Hence, multilevel marketing businesses are generally legal business models that recruit distributors who earn money by selling products to other members that they recruit and through commissions earned on these sales.

Is MLM a Pyramid Scheme?

Pyramid schemes are illegal in many jurisdictions because they are believed to be harmful to consumers and can be a form of financial fraud. Multi-level marketing businesses, on the other hand, are seen as legitimate business models by many people. Multi-level marketing businesses also have a different organizational structure than pyramid schemes, which are typically hierarchical with a single person at the top.

Multi-level marketing businesses, on the other hand, have a flatter structure in which participants are more equal. Multi-level marketing businesses also typically sell actual products or services, while pyramid schemes often do not. One common argument against calling multi-level marketing a pyramid scheme is that not all participants lose money in MLM.

While it is true that some people do make a profit from these businesses, the vast majority of people do not. In fact, the majority of people who get involved in multi-level marketing end up losing money. So, essentially, MLM is not a pyramidal scheme but it can become pyramidal if it’s not managed correctly.

What is the difference between multilevel marketing and pyramid scheme?

The main difference between a pyramid scheme and a Multi-level marketing business is that participants in Multi-level marketing businesses actually sell products or services, whereas participants in pyramid schemes only receive commissions for recruiting new people.

Multi-level marketing businesses also typically have a flatter organizational structure than pyramid schemes, which are typically hierarchical with a single person at the top. Multi-level marketing businesses also tend to be more transparent about how profits are divided among participants than illegal pyramid scheme-based businesses.

Examples of Multilevel Marketing (MLM) Businesses

1. Amway

Amway sells cosmetics, health products, and cleaning supplies. In 1959, Jay Van Andel and Richard DeVos launched Amway in Ads, Michigan. A family-owned business has grown to have offices all across the world since then.

Amway is present in Australia, India, China, Turkey, the United Kingdom, Poland, Japan, and a variety of other countries. The FTC conducted an investigation into the firm’s behavior and discovered no pyramid scheme activities. It increased the company’s reputation after it had been tainted by accusations of being a pyramid scheme.

2. Mary Kay

Mary Kay is a cosmetics company that was founded in 1968 by Mary Kay Ash. The company sells skincare, fragrances, and makeup products. It operates in more than 35 countries and has a presence in the United States, Canada, Mexico, Australia, New Zealand, China, and several other countries.

Mary Kay was the world’s sixth largest MLM company in 2018. It is known for its skincare, makeup, body&sun, fragrance, men’s, and gift lines. There are three ways consumers can order from Mary Kay: by visiting a store, contacting a representative, or ordering on the website.

They have utilized a hybrid MLM approach. They arrange offline events or meetings and employ beauty experts who provide items directly to consumers. When new sales agents are invited, distributors also get a cut of the profits.

3. Herbalife

Herbalife is a global nutrition company that sells weight-loss, dietary supplements, and personal-care products. The company was founded in 1980 by Mark Hughes. Herbalife operates in more than 90 countries and its products are sold through a network of independent distributors.

The company has been the subject of controversy over the years with accusations that it is a pyramid scheme. However, Herbalife has denied these claims and continues to operate.

Herbalife employs close to 10,000 individuals globally and has a little under 4.5 million members. Their MLM strategy focuses on the binary structure, limiting one distributor to two sellers at the first level of sales.

4. Forever Living

Forever Living is a direct-selling company that sells health, beauty, and wellness products. The company was founded in 1978 by Rex Maughan. Forever Living operates in more than 145 countries and has a network of more than 9.5 million independent distributors.

The company’s product range includes aloe vera-based drinks, personal care products, weight management products, and essential oils. Forever Living focuses on the beauty and wellness industry. It offers a wide variety of products that are based on Aloe Vera. The company also has a beekeeping operation that provides honey for some of its products.

The income is expected to reach $4 billion in 2021. Forever Living, like many of the other businesses listed here, has offices around the world. They have millions of individuals exposed to their advertisements.

5. Nu Skin

Nu Skin is a global leader in premium-quality anti-aging products. The company was founded in 1984 by Blake Roney, Steve Lund, and Sandi Tillotson. Nu Skin operates in more than 53 countries and has a network of more than 1 million independent distributors.

Nu Skin’s product range includes skincare, cosmetics, dietary supplements, and personal care products. The company is known for its cutting-edge anti-aging technology. The company has a strong focus on the Asia-Pacific region and has continued to expand its operations in recent years.

Nu Skin uses what is called a Stairstep Breakaway Plan which encourages distributors to sell more products by increasing their commission percentage when specific milestones are reached. This has been an effective strategy in motivating their sales force.

Conclusion!

Multi-level marketing has been around for many years, and there are both legitimate businesses and scams out there.

Be sure to do your research before getting involved with any multi-level marketing opportunity, and always remember that you should never have to pay to start your own business!

If you’re interested in multi-level marketing, look for independent business owners who are already successful with the company’s product and ask them how you can get started.

Do you have any experience with multi-level marketing? Share your story in the comments below!