Every income opportunity comes with some risks. Risks that are worth taking to prove your metal or just ignoring them and move ahead. With many forms of scams, and get-rich-quick schemes rounding the internet every day it makes common sense to do thorough research and gain appropriate knowledge before diving into risky waters. One of such business methods that I am going to talk about is MLM (Multilevel Marketing or Network Marketing). So, what is MLM business?
MLMs are promoted as one big opportunity to earn a living and achieve financial freedom. But MLMs cannot be trusted blindly as it involves lots of learning, investment, physical effort, and planning to succeed.
Read on to find out everything about working with MLM’s, the income opportunities and risks it carries, and the pros and cons.
What is MLM Business or Network Marketing?
Multilevel marketing or Network marketing is an old business model that depends on direct selling.
It relies on person-to-person sales by independent salespersons or representatives who mostly work from their homes.
A network marketing business model would require building a network of salespersons or business partners to generate leads and close sales.
How does MLM business work?
Multilevel marketing is known by different names including Network marketing, referral marketing, cellular marketing, or direct marketing.
The network marketing business model works by forming tiers of salespersons or representatives. Each salesperson is encouraged to recruit new salespersons to form another network of salespersons or representatives.
The person that created the network of salespersons creates a new tier known as the “upline” and earns a commission for every sale from his effort.
The upline also earns commissions from products sold by the “downline”.
The downline can also create another tier by recruiting salespersons and earn commissions from the sales of the downline. This makes the top-tier person who was the first upline to earn more commissions.
What is a Pyramid scheme/selling?
A pyramid scheme is an illegal business scheme that recruits members with the bogus promise of paying those members multiples of the amounts they have invested.
Pyramid schemes rely on new members to pay old members who are higher up in the scheme.
The scheme collapses the moment there are no new members to recruit. There are no products or services to sell in pyramid schemes.
Difference between MLM and Pyramid Scheme
The major difference between an MLM and a pyramid scheme is that in MLM there are products to sell to earn commissions but pyramid schemes don’t sell products or services.
Pyramid schemes rely on the payment of new members to sustain the scheme while MLM depends on product sales; not new enrolments like a pyramid scheme.
How do MLM companies make money?
MLM companies make money through the selling of products to interested consumers. These products are sold through direct selling or by word of mouth.
MLM depends on their representatives or distributors to sell their products with a set target that must be met.
How do MLM companies recruit people?
MLM companies recruit distributors by offering them very enticing commissions and bonuses. These distributors recruited by the MLM companies then recruit more distributors as their downline. A network of distributors is built over time.
The main distributors recruited by the MLM companies earn commissions from the products they have sold and from the sales of their recruits while the recruits earn commissions from their direct sales.
People join MLM for different reasons. Some see it as a lucrative business opportunity while others just want to earn commissions from the products they purchased directly.
MLM commission/compensation strategy and payments
MLM companies offer a commission structure that is between 1% and 50%. Most of them offer base commission.
A base commission is a commission earned by selling directly to the customers. Other MLM companies also use the wholesale commission for their distributors.
The commissions also come with bonuses depending on your level in the company’s MLM hierarchical structure.
Commission payments are usually made through cheques or bank wire transfers. Commissions are never paid in cash.
What to look for in an MLM company
A lot of people fall victim to MLM scams because they fail to do their due diligence before joining an MLM company. Don’t be hoodwinked into joining any MLM company without properly scrutinizing your options.
Here are the five things you must look out for before choosing an MLM company:
1. Company profile – Checking the company’s profile is the very first thing to do before joining an MLM company.
You have to be sure that the company has been around for many years, at least, a decade. A lot of the MLM companies fold up after five years.
You also have to check the financial stability of such a company. The company must have a good yearly turnover.
2. Compensation plan – The next thing to check is the compensation plan. Don’t check if the company pays huge commissions. What you need to check is if they pay their members.
Also, ensure that commissions are paid from products sold and not from the membership fee.
3. Products – The products must not only be of quality but also be of value. A product without value cannot be purchased repeatedly by customers. MLM needs repeated purchases to succeed. These products must not be overpriced and must come with a money-back guarantee.
4. Business education – Many MLM companies are like: this is the product and here is the door, go out and sell. This is an archaic approach to selling.
A good MLM company should train its new members on how to sell its products. There should be a lot of resources that new members can find online if there is no physical training.
5. Marketing and selling method – Checking the marketing system of the company is important. Many MLM companies are still urging their members to recruit their family and friends. This method is outdated.
If the company has an international presence, you can leverage the internet to find people who are looking for good business opportunities.
You must also ensure that the MLM you want to join allows the selling of their products online especially selling through social media and having a personal website. Direct selling is now out of fashion.
Is MLM legit around the world?
MLM no matter how it is disguised is prohibited in many countries like China and Saudi Arabia. In China, it is seen as a variation of a pyramid scheme.
Many companies have devised other methods to sell their products in China. Even at that, the companies are limited by the Direct Sales Regulations that limit direct selling to kitchen utensils, cosmetics, sanitary products, and bodybuilding equipment.
In Saudi Arabia, it is completely banned by placing the religious fatwa on MLM companies. Companies like Herbalife, Oriflame, Mary Kay, and Amway have circumvented fatwa by selling online.
In the United States of America, MLM operates in the whole 50 states with strict regulation from the Financial Trade Commission (FTC).
Who is MLM suitable for?
MLM is suitable for the following people:
- Those who can take a small risk to earn good residual income
- Persons who love direct selling
- People who love to build relationships over time
- People who want to work from home within a flexible schedule
- Individuals who are open-minded to new opportunities
- People who desire financial freedom
Can you make money with MLM programs?
Yes, you can make money with MLM programs. But you have to join at the right time and sell a lot of products to earn good commissions. You also have to recruit people and make commissions from their sales.
Pros of joining MLM programs
- You will earn commission on other people’s efforts – Once you are able to go through the initial stages and build a team that’s where lies the success mantra of making regular income from your downlines.
- Freedom to work from home with a flexible schedule – This is what most of us desire and it is true to an extent. There is no time obligation and you are at will to execute your plans.
- You will get trained and be given marketing materials – Both aspects are essential and needed to establish yourself in the MLM market.
- It is a chance to earn residual income – Yes, with time and experience you are at the comfort of witnessing streams of income flowing in from your team of network.
- It is an opportunity to sell quality products – This largely depends on the MLM program you are associated with but it is true that you can be a user and employer of a company that believes in selling quality and durable products.
- No employees to hire and pay salaries – Although there is a larger level of recruitment but you are not bound to pay anyone as it is automatically adjusted with multilevel networking and hiring.
Cons of joining MLM programs
- You will have to invest – Most of the MLM company memberships are paid. You will have to bear the cost of purchasing starter kits, the cost of promotions, the cost of keeping your membership active, and any other relevant fees depending on the type of product you are selling.
- There is physical effort – You cannot achieve success without excelling in your sales, promotion, and recruitment skills. And the process is continuous without which you cannot make money.
- It takes time to become well established – Success and money are not achieved overnight. It may take months or even years to earn a living. The luxury and comfort come much later.
Conclusion: Is joining an MLM recommended?
MLM is not recommended if you don’t have these two virtues – perseverance and patience. If you join an MLM company with a get rich quick mentality, you will fail woefully.
The sad part about MLMs is 98% of the people fail to make enough money for survival. It shows that you really have to be at your best to make out something from this kind of business.
Don’t join an MLM company if you have the penchant for quitting early in previous business endeavors.
MLM is for people who can keep pushing even when the result is not encouraging. It is for mentally tough people.