Category: 

What Are the Different Types of MLM Businesses?

Multi-level marketing businesses allow participants to earn money from selling products, and also from recruiting others to sell.
MLM salespeople can earn commissions from the sales of the people whom they recruit into the business.
Article Details
  • Written By: Dale Marshall
  • Edited By: Kristen Osborne
  • Last Modified Date: 17 July 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The Bloodhound is the only animal whose evidence is admissible in court.  more...

August 22 ,  1902 :  US President Theodore Roosevelt became the first US President to ride in an automobile.  more...

There are three types of multi-level marketing (MLM) businesses, based on their major source of revenue: those that sell a product, those that sell a service, and those that sell memberships. MLM businesses are made attractive to potential salespeople because they can earn commissions not only from the sale of the goods or services they sell themselves, but also from the sales of those they recruit into the business. While many MLMs are very reputable and successful businesses, some have employed questionable marketing and recruiting tactics, sullying the reputation of the entire industry.

MLM businesses are generally regular businesses selling products or services. Multi-level marketing is their approach to distribution and sales; instead of selling goods out of a storefront or services from an office, they contract with individuals to do their selling as independent contractors. Known by such terms as associates, distributors, representatives, or affiliates, they reach out to potential customers in a number of different ways, including traditional advertising, online approaches, and door-to-door direct sales. New associates typically pay significant fees to join the sales force, and are sometimes permitted to advance to managerial status for a higher fee.

Ad

MLM associates earn commissions on their own sales, and they earn smaller commissions, or overrides, on the sales of those associates they've recruited to the business. When an associate recruits a new associate, that new associate becomes part of the recruiter's “downline,” which comprises all an associate's recruits, plus all of their recruits. Most MLM compensation packages offer overrides on second-, third-, and fourth-generation recruits, and some offer overrides on an associate's entire downline.

MLM businesses that sell products usually make the product themselves, but in some cases, they'll contract with a third party to manufacture it with the MLM's label. Examples of such products include such things as vitamins and nutritional supplements, cosmetics and beauty aids, cleaning supplies and other household products, and other products that lend themselves to impulse and repeat purchases. While some associates will maintain an inventory of the product for immediate delivery when a sale is made, most take orders and transmit them to the home office. Some companies ship orders directly to the customers; others deliver orders in bulk to the associates, who then hand-deliver them to the customers. In either case, associates' compensation is based on the dollar value of products ordered and paid for.

MLM businesses that sell services, on the other hand, have no need for inventories or recurring visits to clients. Their associates market the company's services the same way as the product-selling associates, and are compensated similarly. Instead of selling a product, though, they sell memberships to the company's service. There's very little commission paid for renewal memberships, however, so an associate must constantly find new clients to maintain a good income. Service-oriented MLMs sell online education plans, buying club memberships, legal services, financial services, and similar services.

The third type of MLM business sells memberships, and can more accurately be classified as a pyramid scheme. These MLMs concentrate on recruiting new associates, and there's little attention paid to selling a product or service. These MLM businesses pay associates a significant commission for recruiting new associates, providing an added incentive to seek revenue from a source other than the company's product or service. Without an emphasis on earning revenue from the sale of a service or product, such MLM businesses inevitably collapse.

Many MLM businesses are very successful. Despite their success, however, most research indicates that the majority of associates don't earn enough from commissions and overrides even to pay their expenses. The companies, on the other hand, earn money not only from the sales of the products or services, but also from the from the sign-up fees charged to new associates. Many MLMs also sell their associates a wide range of sales support materials, such as presentation binders and other promotional material, and even require that business cards and other stationery items be ordered through the company.

The success of some of the large MLM businesses has led to a wide range of imitators. Some of these imitators' activities have prompted investigations, which have cast a shadow on the entire industry. Those considering joining an MLM should carefully perform their own due diligence before signing any agreement or paying any fees.

Ad

Discuss this Article

anon161579
Post 5

My wife and I were both entrepreneurs before we started an MLM business and both of our businesses are very successful, but we were always looking for something else because we knew the work that goes into making a business successful from scratch, and we both wanted to have kids and that takes a lot of time -- time that neither of us would have had if we kept our traditional businesses. So, we did our research and found a company that has been around for years and sold everyday products and good quality products at that, so I knew that I could really stand behind these products and sell them with honesty and integrity because I knew that they way to succeed was to sell products that people would keep coming back for.

Also, the company and team I found were people whom I honestly felt were looking out for my success and had a true desire to see me and my family achieve success through there business opportunity. So to sum it up for anyone thinking about doing an MLM or not, I think you really need to find someone who has your best interests at heart, because whether you're doing Amway, Avon, Mary Kay, ACN or any other company out there. Just because one person showed you the business plan for any of these companies but you don't get that connection or feeling of their true willingness for your success doesn't mean that an MLM isn't for you. You just need to find another person who does have your interest at heart. If you feel like you can sell Amway or Avon products easier then ACN ( not that I'm putting any one down because I'm not), I believe that's very important because you get paid on volume moved. So find that person who truly wants to see you succeed and has a system in place to help teach you.

Lastly, you can probably tell I'm a huge believer in this kind of business. If I can leave you with one more piece of advice: if anyone tells you that you can make a lot of money for doing very little, you don't want to be in business with them because I believe one of the main problems with this industry is that most people don't treat the opportunity like a real business, and any business requires great effort, especially in the beginning.

I know I never sign anyone up right away because I want them to do their research and make an informed decision, because I don't want to waste my time or theirs with someone that does nothing. If you do that, then after you sign them up, they go and talk to someone all excited and they steal their dreams from them. There is no such thing as a “get rich quick” thing. You need to wake up and come back from dreamland, if you think there is. If you're willing to work and put in consistent and persistent work, you will make a good living. I'm living proof. My wife retired and I'm in the process of selling my other business and retiring, myself. I hope this helps.

dmarshall
Post 4

Yes - be very cautious when a business' promises just seem to be too good to be true, whether it is employment or investment.

Also, before you put a penny of your own money into any opportunity, or sign anything, make sure you know where the bulk of the money comes from. If the main revenue stream is from selling memberships, you're dealing with some variation of a Ponzi scheme. If the bulk of the revenue comes from the sale of a service of product, it's likely legitimate, even though that means hard work. Good luck!

rosoph
Post 3

I have found what, in my opinion, is the best MLM business! It's one that sells a variety of products that I, and everyone I know, already use everyday. Just by buying these same household products that I already buy, and by finding a few people to buy from me too, I can make some side money.

The best part is that I have control over how much I want to earn. The more work and time I want to dedicate to it, the more money I can make. But if I don't want to spend a ton of time on it, I at least have a bit of extra pocket money coming in. I love it!

claire24
Post 2

I am unfortunately one of the people who has fallen for the promises of MLM businesses that didn't really work. They made promises of large amounts of money that would be made with little work by me. I thought it sounded brilliant! Until I had spent money on it and received nothing in return.

I'm sure there are legit MLM home businesses out there. The ones that sell products sound like they are good ones. But I know from experience that you should definitely do your research before handing over your money!

reader888
Post 1

It's really a shame that there are so many bad MLMs and pyramid schemes out there. I have had experience with a very good and reputable company, and have personally known people who make a very good living with it.

The thing is that it still takes a lot of work. If something seems too good to be true, then it probably is. And if a company promises you'll get rich in a short amount of time with very little work, it's most likely a scam.

But there are definitely reputable MLM companies out there that people can go into business with and make a good living. Just expect to work, work, work.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email