Defining MLM

MLM stands for "multi-level marketing". This type of business differs from other businesses because a person starts out as a distributor, earns commissions and then if they continue to purchase products or services, they can become an independent distributor. They also have the potential to earn money by referring others to the company.

However, not all multi-level marketing companies are legitimate and there are some potential problems with purporting it as a legitimate business model.

This post will give you some information about what MLM is and is not so that you can make a more informed decision about whether or not it's worth looking into for yourself. It will cover topics like the difference between direct selling and multi-level marketing, what types of MLM companies you can work for, and some of the key characteristics of successful MLM companies.

During my research for this post I found a few other articles from different websites that described MLM as "pyramid schemes" and they were fighting back against this misconception in their post. I'd recommend reading those articles if you want to learn more about this topic.

What is Multi Level Marketing? [ARTICLE END]

Multi-level marketing (MLM) is also known as network marketing or direct selling. It's a business where you sell something to someone, who then sells it to someone else, and so on and so forth. You must buy products or services in order to make money. You can do this either by ordering directly from the company (direct selling), or by doing it through a distributor (MLM). In some cases you may also be paid for your time.

MLM companies can be made up of hundreds or even thousands of people, but the term is often used for ways that are much smaller scale. Sometimes MLMs only have a few hundred people in them at any given time. The term "multi-level marketing" is used more frequently when discussing these types of companies.

The reason that some people don't consider MLM to be a legitimate type of business is because:

You can't just start the business and start making money from day one. You must first build a team, which requires time and money. There will be some people who are dishonest, so it's important to screen potential distributors. It costs money to become a distributor in most MLMs, so it's not free to get started. A lot of MLM companies are launched with little capital, but with the expectation that they will earn millions as soon as they are successful – which is pretty unlikely! You have to buy products every month or you won't earn income through your commissions or your network's sales. This is a major advantage for many people, since it means that you do not need to be a skilled marketer in order to earn money. You can become an independent distributor, who sells the products to others and earns commissions from every sale that you make. However, some people believe that as soon as you become an independent distributor there will come a point where you cannot make more sales or your commissions will decrease – therefore it might be better to just buy products from the company itself instead of selling them on your own.

However, many of these points are dependent on the specific MLM company. In other words, some MLMs have a completely different commission structure than others. For example, some companies pay their distributors on a per-unit basis, so you only earn a certain amount for every product sold. In other companies, you might earn full commissions based on the number of products sold by your distributor's team. Finally, some companies may be willing to give you full commissions even after they have paid the original sales price to the distributor.

I know that you're probably not going to want to work for a company that pays its distributors based on how many products they sell each month. However, this is the case with some of the larger MLM companies such as Amway, Herbalife and Nu Skin.

What Types of MLM Companies Can You Work For? [ARTICLE END]

Some MLMs have different types of distributors that can work for them. Some companies might only consider people who have a skin care product as a distributor, while others might allow people to be either distributors or independent representatives who sell the products on their own and make their own sales. In other cases there may be people who can be both types of distributors (both selling products themselves and referring new members) or people who only function as independent representatives and do not participate in any type of team sales or recruiting activities.

Before you sign up with a particular MLM, you should probably find out what type of distributor they are looking for. This is because some companies need more people to be distributors and others need more people to be representatives. This might not make a difference to you right now, but it could matter in the future. For example, if you start off as an independent representative but decide that you don't have time to do everything yourself and want to switch over to being a distributor, then it's better if the company already has plenty of additional distributors who are able to handle the additional sales volume that you'll generate by joining the team.

You might also hear the term "multi-level marketing" used by other people when they mention MLM or direct selling in general. In fact, this is one of the most widely used terms in the industry. However, it's not correct to say that someone is "playing multi-level marketing," since very few people are actually involved at all levels of the organization. Usually people have just a few distributors who sell products to independent representatives and then on who refer more salespeople. For example, a magazine may say that they are a multi-level marketing company, while in reality there are probably only two levels – the distributor and the independent representative.

There appear to be a number of MLM companies in India and abroad. Some of these may even have a legitimate business model, but I have found them to be scams. Here are some of the details:

Wong (2000) studied the recruitment strategies used by multilevel marketing companies in which distributors were required to recruit new distributors by either purchasing products or services for the company or recruiting others to purchase their products. This system creates a potential bias by limiting the number of available rewards and causing injury because only successful distributors can hope to advance in the organization.

In a similar study, Fisk and Accardo (2004) reported that there are several problems with an MLM scheme. First, the MLM rewards distributors for recruiting their own recruits. Second, if you start as a distributor, there may come a point when your potential for further sales is limited due to other people ahead of you in the pyramid. Finally, because most people do not end up at the top of their company's pyramid structure, it is unlikely that you will ever be able to earn enough money to make it worthwhile for you to continue as a distributor.

In another study published by Zaichkowsky (2011), four case studies were presented involving MLM companies: Nu Skin Enterprises Inc.

Conclusion

In this article I have discussed one of the more common ways that people try to make money online through affiliate marketing. However, from my experience dealing with a number of companies that use this model, it tends to be very difficult to make money in this way. In fact, most people who try to go into affiliate marketing end up quitting or never even making their first sale.