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What is MLM?

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  • Written By: Adam Hill
  • Edited By: Bronwyn Harris
  • Last Modified Date: 19 August 2014
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Many types of products, rather than being available on store shelves, are sold through a distribution technique known as network marketing or multi-level marketing (MLM). In this type of distribution pattern, independent salespeople represent a parent company and are paid on commission based on the volume of product that they sell. It is sometimes difficult to distinguish reputable MLM businesses from illegal pyramid or Ponzi schemes, since these try to portray themselves as MLM companies.

The salespeople in MLM companies are often called distributors, consultants, dealers, or any other name which indicates that they sell a product for the larger parent company. Many products sold through MLM are nutritional supplements or are otherwise related to health care, but they can be any type of product. Distributors can earn money through MLM in either of two ways: by retailing the products they purchased at a wholesale price, or by recruiting other distributors who build a customer base in order to expand the whole organization.

In most legitimate MLM companies, no commissions are paid based on recruiting alone, but only on the sale of products. If new participants are paid based on their number of recruits, or if they are required to purchase a larger amount of “inventory” than they will likely be able to sell, then the organization may be a pyramid scheme. These are illegal in most countries, including the United States.

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Compensation plans vary from one MLM company to the next, but there are a few common patterns. The simplest are called unilevel plans, and they pay commissions based on the number of levels a representative is from the original one who purchased the product. Advancing in rank or title does not increase compensation. From that point, compensation plans get more complex and varied, and may involve sales quotas, incentives, bonuses, or any combination thereof. There are literally hundreds of MLM companies, each with its unique structure.

MLM companies became very prevalent during the latter part of the 20th century. With their increased popularity came much harsh criticism, because of the low likelihood of making significant income through these types of businesses. There are legitimate network marketing opportunities available, and it is possible to create income in this way. However, it is important for someone considering them to employ a proper amount of skepticism regarding outlandish or unverified claims of wealth generation. The old proverb still holds true that “if it sounds too good to be true, it probably is.”

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Discuss this Article

anon287220
Post 7

Great information here. I have been involved in MLM, network marketing and I have seen many people fail because they just do not understand this is like any other business. It takes work and effort on a consistent basis. The book by Darren Hardy, "The Compound Effect," really points people in the right direction, not just for success in MLM, but in life. Check it out.

myrongolden
Post 6

There are seven skills that you must master to become successful at MLM: Mindset mastery; prospecting mastery; presentation mastery; closing mastery; leadership mastery; marketing mastery; wealth mastery.

I wish you much success!

anon181805
Post 5

i think mlm is one of the most noticed but least understood business system available nowadays. MLM is nothing but a channel that will be used to sell goods or services to end consumers who will be buying the products based on the product benefits rather than participating in the business themselves.

MLM may be a business where you are required to recruit some distributors to help yourself move large volume of products or services to consumers who actually intend to buy the products. However, mlm is not a solely recruiting business where you will end up with a large number of recruited distributors but no product/service is actually being moved to the end consumers. Moving the product to end consumers means creating retail sales and that is exactly what every distributor must do, whether they have any downline distributor in their organizations or not. Retail sales are the lifeblood of any type of business and mlm is no exception.

So, please ladies and gentlemen, listen to this carefully. if you are invited to a company where you are presented with products that have little possibility of retail sale, run fast in the opposite direction. retail sales are how you establish market demand for a product and once the demand is established, your marketing task has been accomplished.

From then on, you are no longer required to do prospecting; you are only required to supply the products through that channel. You have lots of customers who are eager to repeatedly buying the products that you can supply.

mutsy
Post 4

@SauteePan - I think that those are good ideas. I just wanted to say that this industry does have a high failure rate because people do have high expectations when they begin.

I think that analyzing the business opportunity and realizing the amount of personal sales and recruits you will actually have to have will make the picture a bit clearer.

I think that you should have a cooling off period of a few days in which you can think about all of the work that is required along with the potential for income in the future.

If after a few days the idea still sounds good then I would try it, if not then just pass it up.

SauteePan
Post 3

@Cupcake15 -I also think that this business model is a little difficult for most people because there is usually so much excitement when a person initially joins that when all of that settles they find that the opportunity is a little bit more difficult than they had originally anticipated.

Loving the product is important but it is not enough because you have to do a lot of prospecting and setting up appointment parties in order to build your book of business.

I think that networking with a lot of different groups helps you to spread the word around about your product or service and maybe get a few people to join you and work in your downline.

cupcake15
Post 2

@Sunny27 -I agree that building the MLM downline is essential to building a decent income with the company. Some people thrive in this type of set up and actually earn a good living and get to experience the prizes like the trips and cars that many of these companies offer.

I think that you really have to understand your personality to see if an MLM opportunity is for you. You really have to have a persistent yet outgoing personality in order to be successful.

Creating a business plan is a must because you have to have a plan on how you will sell your products and how you will recruit members for your team to sell for you.

Sunny27
Post 1

I think that the hardest part of pursing MLM opportunities is coming up with the MLM leads. A lot of people get caught up with the product line and the discounts that they will receive along with the potential incentives that they could earn for reaching certain sales levels, but they don't take into account the work involved to get there.

While many of these companies do offer MLM training, people will fail because it is set up like a business opportunity and not a job. If you try to sell your products without recruiting additional people to work under you, you won’t make hardly any money because the money comes from building a team and getting a percentage of what the team sells.

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