Multi-level marketing

                                

             Basic image of  Multilevel Marketing

Definition:

             

           Multilevel Marketing, or MLM, is a system for selling goods or services through a network of distributors. Multilevel marketing is also referred to as Network Marketing or Direct Sales.

What is 'Multi-Level Marketing'

Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits' sales; the recruits are known as a distributor's "downline." All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct-sales company that uses multi-level marketing.

Revenue streams

In the MLM business model, the commission derived from the MLM pyramid structure (i.e. from the sales of one's recruits) is the most profitable revenue stream. This revenue stream, however, is also the least statistically probable source of remuneration to a salesperson. Conversely, the revenue stream from direct-sales of ones own personal sales is the least profitable. This revenue stream, however, is also statistically the most likely source of remuneration to salespeople. For the overwhelming majority of participants, however, neither one of these two revenue streams will be profitable after operating expenses are deducted.

Participant profits and losses

The overwhelming majority of MLM participants (most sources estimated to be over 99.25% of all MLM participants) participate at either an insignificant or nil net profit.^[9] Indeed, the largest proportion of participants must operate at a net loss (after expenses are deducted) so that the few individuals in the uppermost level of the MLM pyramid can derive their significant earnings—earnings which are then emphasized by the MLM company to all other participants to encourage their continued participation at a continuing financial loss.

Participant consumerism

Consumers of an MLM company's products/services can, in theory, be merely end-user retail consumers. End-user retail consumers are non-participants of the MLM company, with their relationship to the MLM company being nothing more than in a capacity of consumers. In actual practice, however, the overwhelmingly majority of consumers of MLM products/services are the participants. They are the very "salespeople" within the MLM who had been recruited by a fellow participant positioned above them in the MLM pyramid structure.

Revenue and total profit of the MLM company is thus largely generated from the pockets of participants within the MLM pyramid who are simultaneously both salespersons and consumers at once. Only an insignificantly small proportion of revenue and total profit is derived from non-participant retail consumers who are outside of the MLM participant pyramid. Many MLM companies will not disclose what percentage of its consumers are simultaneously their own participants. Other MLMs do not keep said figures because they do not differentiate between participant consumerism versus non-participant retail consumerism

Distribution of profit to participants

t is important to distinguish between the MLM company itself versus the so-called "independent businesses" run by the MLM participants. Many MLM companies can and do generate billions of dollars in annual revenue and hundreds of millions of dollars in annual profit, however, an MLM company's overall p1. 

Participant financial loss, company financial gain

rofitability does not correlate to the profitability experience of their participants.

The percentage of an MLM company's total profit that is ultimately distributed to its participants (the sales force), away from the MLM owners or shareholders, differs from one MLM company to the next. However, the percentage earmarked to be paid to participants is usually a quite smaller share of overall company profits. The earmarked figure is then distributed in complex compensation plans which, ultimately, funnel most of it to a few individual participants in the upper-most levels of the MLM participant pyramid. The remaining majority of participants (often over 99.5% or more) receive no returns, or negligible return which are more often than not at a net loss after they deduct expenses which were incurred in the promotion of their "independent businesses".

What are the advantages and disadvantages of working for a Multi-Level Marketing/Network Marketing company?

Advantages:

              1. Work flexibility

2. Huge tax advantages for home business owners (if you do things correctly, even in your first year, without making a profit, you can gain from hundreds up to thousands of dollars of tax deductions that are completely legitimate)

3. unlimited potential earnings based on your effort and effectiveness.

4. residual income that can continue to pay for years and/or generations

5. Low startup costs

6. You choose who you work with

7. lots of others depending on your circumstance. For instance, I've met with many successful MLM stay at home moms who love the fact that they don't have to work in a career that takes them away from their kids all day long. I'm not a mom, so this one doesn't apply to me, but it is meaningful to lots of people.

Disadvantages:

1. Your effort = your paycheck. If you are not able to correctly manage your own time and effort, you will make nothing. This is probably the biggest problem with the model, in that many people are made to believe that they get to sit back and watch the money roll in.

2. Negative perception of the model. This has been discussed over and over in other questions. It can impact your ability to do business, but is easily overcome with the right information and attitudes.

3. You need the right company. As an industry, the company failure statistics are staggering. 90%+ MLM companies don't survive past 5 years. I've interviewed many folks who put their souls into companies for years, only to have everything they built go completely under. Now, if you manage to find one of those that doesn't go under in 5 years, you also need to avoid those that eventually are deemed illegal by the FTC. I know several people who were participants in FHTM, which was operating for almost 11 years before the FTC shut them down a couple years ago. I also feel bad for the hard working friends I had with WakeUpNow which went bankrupt last year.

4. You need the right comp plan, or a heart of stone. Some MLM companies are designed to work only for the top reps. That's right, they are DESIGNED so that most new reps fail, on purpose. If the comp plan pays significant amounts of money based on the recruiting only, then there is no incentive for them to do anything other than recruit more suckers to pay them those recruiting bonuses. Good comp plans build in incentives for recruiters to help their new reps succeed and then more incentives to help them continue to succeed. Any plan that doesn't have these types of features is simply a churn and burn style MLM. Over the long run, you would have to be a heartless SOB to continue to sell that fake dream where 97% lose money overall.

5. It can be up and down. Emotionally, physically, and financially it can be a roller coaster.