MLM or Multi-Level Marketing is a form of marketing where referrals earn a commission for selling products at multiple levels
MLM is an acronym to Multi-Level Marketing, otherwise known as network marketing. It is a form of direct selling business where an independent representative sells products or services to end customers.
Now the origin of the word multi-level is historical. It comes from the level-based system (pyramid structure) in which an individual has to recruit and train new representatives. These new recruits will further work as the downline.
A step further the new recruits have to employ other new individuals in their downline and train them to make sales. This way the process goes on and on. Every day fresh or experienced individuals join the downline making it a multi-level chain of sales representatives.
Refer to the image below to understand MLM.
The Earning Module Overview
The question is what motivates the new recruits to sell products or services. The short answer is the commission. Each and every recruit works hard to make more sales to grab more commission.
The best part is – recruits those who are on top in this multi-level system make more money compared to those who are at the bottom.
Hence, those who are on top needs to work hard on recruiting smart and intelligent people. It is a kinda one-time investment. Income earned in MLM comes from the commission earned on personal sales.
A percentage of sales earned by new recruits goes to the upline. In short, the more sales new recruits make the more commission those on the top of the system earns.
Let’s understand some of the common terms being used within the MLM marketing.
The word downline means individuals recruited below (down) you. These members are either recruited by you or by those whom you have aligned in the downline. For example, you recruited A. Now A further recruited B and C. Hence, A, B, and C are your downline.
Individuals who have come before you. In other words, you are downline of an upline. For example, if A recruited B, who further recruited C, who again recruited you, hence your upline is C, B, and A.
The term plan refers to the scheme or program that members use to make sales. A plan is an outline of a company’s marketing and compensation payouts. The plan tells how individual representatives will earn money.
A recruit is a team member. He/she is a person brought into the MLM business either by an upline or a downline. They are trained to make sales and recruit other like-minded people into the business.
Multi-level marketing (MLM) is sometimes referred to as network marketing as well.
Is MLM Legal?
The legality and credibility of MLM business have always been on stake since its inception. There are many myths and misconceptions about MLM. The question is whether or not MLM is a legitimate business model.
However, for an MLM business to be legal, it requires three things:
- High-quality product or service
- Income is earned off sales of products or services
- The focus must be on sales, not on recruitment.
Almost every MLM business follows a pyramid structure for sales, recruitment, and commission calculations. An MLM business program with a low-quality product that is mainly focused on getting paid per recruit is completely illegal.
Moreover, an MLM scheme is still illegal whether or not it follows the pyramid structure. Hence, an MLM business model that mainly focuses on income earned only by recruiting people and not commissions from sales isn’t legal.
Advantages of Multi-Level Marketing
1. Affordable Strategy
MLM aka network marketing is an affordable way of marketing products or services without additional advertisement expenses. Mouth publicity plays an important role. Recruits hold meetings with potential people to motivate and educate them to join the business.
2. Learning Opportunities
There’s no 100% perfect process to sell a product successfully. Whatever you learn comes from your experience. MLM or Network Marketing is the best method for anyone to get trained in the sales and marketing sector. Doing this one can acquire practical knowledge about the market at a low-cost.
MLM business model offers flexibility. If you are fed up with your regular 9 to 5 job, need some change, or want to earn extra money then MLM is for you. As a result, one can streamline an eternal source of passive income through MLM business.
4. Tax benefits
The MLM aka network marketing business model is traditionally developed by small entrepreneurs in the first round. Products or services are further developed so that end customers can use them. Once the product or service successfully enters the mainstream market it transforms into a large group of the network marketing company.
It is because a large part of the profit margin is distributed into the downline the MLM business gets the tax advantages.
5. Income and Earnings
In the MLM earning model, your income completely depends on the serious efforts that you put in. As discussed above, MLM is a one-time investment. The more members you recruit as your downline the more commission on sales you will receive. Hence, income and earnings are unlimited in this business program.
6. Be Your Own Boss
Since MLM earning structure is free from time, place, education, and other limitations, you are your own boss. Focus on selling products or services. Recruit a sales force in your downline who is interested to achieve any given target. Study about the brand, the target audience, and how to deal with potential leads.
7. New Methods of Marketing
Earlier mouth publicity was the only available tool to educate people about your MLM business scheme. This way you could cover a very small area or reach only a few people. But now you have the power of digital marketing. Using social media and the internet, you can target and reach millions of people easily.
Disadvantages of Multi-Level Marketing
1. Illegal Business Model
There are thousands of companies operating the MLM pyramid scheme. Due to the absence of strict laws, it’s impossible to judge whether the company is running a legitimate scheme or not. Most of the MLM companies have illegal objects to gain money. This is the biggest reason why MLM is no less than a Ponzi scheme.
2. Filthy Products
MLM aka network marketing products is developed on a low scale without proper research. Additionally, these products are sold via face to face meetings or during a private function, unlike corporate style. In short, you are selling something to someone who doesn’t need it in the first place.
Besides private parties are not a place to make sales. There are higher chances of rejection and potential lead doubting the legitimacy of the product itself. As a result, the product miserably fails before taking off.
3. Perception of Getting Quick Rich
People believe that MLM is a get rich quick scheme without hard work. The reality is different. Moreover, the whole concept of minting money easily is strategically diluted in the mind of a potential lead. They are shown fake income proofs, lavish lifestyle, and everything else to make him/her join the business.
In short, a hoax is created to lure you in the network. Instead, one must genuinely work towards making your life easy with a product or service.
4. Wrong Approach
The upline and downline train a recruit with clear instructions to make others join the business. That’s a wrong approach. The focus must be to develop and sell a product or service that brings meaningful changes in people’s life. Quality products are just a myth in the MLM business model.
5. Joining Fees
Almost every network marketing model requires a potential lead to pay a token amount as joining fees. In return, the new recruit is promised products or services equivalent to the joining fees. The idea is to create the impression that joining is free by giving away sub-standard things that are of no use.
6. Zero Control Over Quality
You are projected as the owner of the company with fake promises. It is just to attract you in the business nothing else. On top of it, you have no control over product quantity, quality, price, and product line. It is the top-level management or the upline who decides the parameters and policies, not you.
7. Not a Career Option
MLM business can be a part-time source of income but not a full-fledged career option. It can be highly demotivating for you if you face server rejections by potential leads.
Chances are you may opt-out of the business losing your joining fees or security deposits altogether. The biggest reason for rejection is selling unwanted, filthy products to those who don’t require it.
The Story of a Person Trapped in MLM
A couple of weeks back I got a call from an old friend whose name I will not disclose here. Let us call him S.
Mr. S is a web designer by profession and apart from his days’ job he is also trying his hands out with MLM (Multi-Level Marketing) with a reputed company or I term it as Mr. S is trapped into MLM.
He knows that I am a blogger and freelancer. So thought of making me his referrer and there is nothing wrong with it. However, he wasn’t aware that as I know the fundamental flaws of MLM programs at least here in India. So I prefer to avoid it. Let us first see the fundamental flaws of MLM Programs.
1. You recruit competitors
You found a superb product. What would be your next step? No no, you are wrong. You would not sell that product but instead, the MLM model encourages you to find people who will be under your referral and sell that superb product.
You actually are not selling anything but you are recruiting your competitor to sell that superb product. Don’t you think the model sounds a bit fishy?
2. Costly Products due to commission at many levels
You are not directly selling the product but actually selling the product for your entire hierarchy of people above you and this actually means commission being paid on each level, making the product more costly.
One may argue the company isn’t doing advertising but instead paying commission. However, that argument doesn’t hold as the salesperson boosts about how everyone in the chain is making huge income.
Why it is unethical to promote a product that you don’t use?
In the MLM form of marketing, often the products are so costly that at times people are not willing to use those products themselves.
However, people are forced to buy them to keep their membership alive.
Moreover, if one remains as a member it gives them a chance of getting a few referrers and recover the fees paid to join such programs.
The second mistake (First of-course is joining such a program).
Your focus is to recover the joining fees you paid. Ideally, you should forget about the fees and move on.
I find it very unethical to promote a product that I don’t use.
At times I find bloggers also promote products that they hardly use it. I term this as Un-Ethical Internet Marketing and try to avoid it.
Any MLM aka network marketing business model requires an excellent product to succeed in the long run. If the whole concept is to just bag money from people the idea will meet its pre-mature death early.
If a product is excellent, the scheme focuses on sales and commission, there’s no intention to lure potential leads and grab heavy joining fees then the business model will surely succeed.
Undoubtedly, like other industries, MLM network business has a set of disadvantages. But they can be easily overlooked if the purpose isn’t mediocre.