What Is Multi-Level Marketing (MLM), And How Does It Work?

What Is Multi-Level Marketing (MLM), And How Does It Work?

Multi-level marketing (MLM) is a marketing strategy that many companies produce to directly sell their products and services. In this marketing process, the company encourages its existing members to promote their products and sell them to other individuals.

They do this to bring new recruits into their business. The new recruits to the business become a part of the distributor’s network so as to sell and earn money themselves. The distributors up the line also get a percentage of the sales made by the recruits.

In this article, you will learn some of the essential details of multi-level marketing and how some businesses make this marketing strategy work. Next up, we will also share with you some of the essential examples of MLM, which will give you a better idea of some practical situations. Finally, you will be able to decide whether MLM is right for you or not. Hence, to find out more, read on through to the end of the article.

What Is Multi-Level Marketing (MLM)?

According to Wall Street Mojo,

Multilevel marketing (MLM) is a form of the business strategy employed by direct sales companies to generate sales revenue. It involves a network of distributors earning by selling company products and services directly to consumers, either in-person or online. These direct salespeople recruit other participants and earn commissions from the sales they make.

Companies that mostly operate through the direct sales method choose the multi-level marketing method as a strategy to run their business. They use this method to sell their products and services and also encourage their members to promote and sell their products to other individuals and bring new recruits as well.

Based on sales and recruitment, the members at all levels get commissions. The distributors also get a percentage of the sales made by the recruits. The new recruits become a part of the network built by the distributor (and are termed downline distributors). The upline distributors encourage distributors down the line to make more sales to earn more capital.

However, in many cases, businesses running through multi-level marketing strategies are declared as illegal if they run through pyramid schemes. As per law, it is illegal for a multi-level marketing company to run pyramid schemes in the distributorship business. Hence, due to this factor, many people view MLM companies in a negative light.

How Does Multi-Level Marketing (MLM) Work?

Businesses that rely heavily on sales use multi-level marketing as a business strategy to generate higher revenue. Unlike other traditional sales-based businesses, an MLM business makes use of its network to recruit more participants and make more sales as a result. Hence, in many cases, multi-level marketing is also called network marketing.

According to Investopedia,

Individuals are brought into the business as contractors, independent business owners, distributors, or direct salespeople. These people are then tasked with selling the company’s products and/or services to others, including family and friends. Sales can be done in person or online. They are given a commission for every sale they make.”

The distributors that are present up the line also encourage distributors down the line to bring new recruits into the programs as participants. However, it is not compulsory for distributors to bring new participants. But, bringing in new ones helps distributors up the line to get a percentage of the sales made by the new recruits. This system works through the entire distributorship channels of the company.

Based on the size of the company, there can be hundreds and thousands of distributor participants. The members at all levels of the distributor network receive at least some form of commission. The rate of commission depends on the chain of distributorship. This acts more like a pyramid. The people higher up receive the highest commission since they have more distributors under their radar.

Multi-Level Marketing – What Are Its Examples?

Here are some of the major examples of MLM companies you can see around you:

1. Amway: In 2019, the company’s turnover was $11 billion. It has been in business since 1959 and has enabled more than 3 million distributors in 100 countries to become sellers.

2. Avon Products, Inc. (1986): Mostly deals with premium beauty products, fashion accessories, and jewelry.

3. Herbalife Nutrition Ltd. (1980): It deals with mostly personal care and nutrition products.

4. Market America (1992): In 2018 alone, it produced a revenue of $7.3 billion.

5. Nu Skin (1984): This one also sells personal care products and dietary supplements and is operating in more than 50 countries.

Is Multi-Level Marketing Right For You? – Let’s Find Out

You might think multi-level marketing is a great way for someone to become a “captain of his own ship,” since you are the owner of your business. Furthermore, you are also selling products that you believe in. However, the truth is a bit different.

The Consumer Awareness Institute found out that almost 99% of MLM participants struggle to recruit new members and resell their products. Many companies hide the illegality of their system, as well as the true costs of participation in the business.

According to the Forbes Advisor,

Rather than turning to an MLM […] think about why you think an MLM sounds exciting and explore other opportunities to fulfill those values. Whether it’s money, wanting to quit your day job or work from home or seeking a sense of community, there are plenty of opportunities that offer those exact experiences without the hefty financial investment and psychological cost an MLM can have.

Final Thoughts

Hope this article was helpful for you in getting a better idea of Multi-level marketing (MLM) and how some businesses make use of this strategy. It is a legitimate business strategy, and many direct sales companies use it for distribution. Existing members of the company bring new recruits, make sales, and get a commission on every sale or recruitment.

In multi-level marketing, members at all levels receive at least some form of commission. The amount of commission one gets depends on the number of layers in the business. However, the FTC’s job is to ensure that MLMs do not operate with pyramid schemes. What is your opinion of MLMs? Share your opinions in the comments section below.

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