If you are wondering what is MLM or multi-level marketing you are in the right place. In today’s blog, we’ll dig deep into this business model, famous companies that work on MLM model, how does MLM model work and how to work out if MLM company is legitimate. Read on to explore!
What is MLM or Multi-Level Marketing?
There’s not a quick definition to it, however broadly it is a term used as a substitute for direct selling or network marketing. Generally, it refers to a large organisation, with hundreds of employees, who are engaged in selling products or services, like beauty products, medical and cleaning products, etc.
The workforce is not salaried and they work in a pyramid shape model, but it is not considered a pyramid scheme. This strategy is also called referral or network marketing.
This legitimate marketing strategy is often used by businesses that heavily rely on sales to generate revenue. Rather than using a traditional approach to make sales, this marketing strategy involves using networking for hiring participants and making sales. Sometimes, this marketing model is also known as network marketing.
Few Companies that Work on MLM Model
Here is the list of companies that work on multilevel marketing models:
- Tropic Skin Care
- Mary Kay
- Tupperware Brands
- Utility Warehouse
- Arbonne International
- Forever Living
- Simply Naturals
- Vorwerk & Co.
How Does MLM Model Work?
Here is how MLM works. Individuals who participate here work as contractors, distributors, independent business owners or direct salespeople. These people are provided with the tasks to sell the company’s products or services to others, particularly to family and friends. There is the choice to make sales, in person or online. Instead of regular salary or wages, participants in MLM are given commission based on the sales they make.
In addition, the MLM also encourages participants to call and recruit other individuals to be a part of the program and work as participants. Against this, the old participants who recruit new individuals are given a commission for their recruits. There are sometimes hundreds and thousands of participants as per the size of the company.
Participants are all paid commission by making a chain in a pyramid form. The longer the participant’s chain, the more commission he’ll earn. The people who stay at the top of the chain earn a large commission, whereas the individuals who are at the bottom earn a minor sum of commission.
How to Work out if MLM is Legitimate?
It depends on many factors like how much money you can put into the business, how passionate you are about your products and the legitimacy of your MLM. Bear in mind that pyramid schemes are illegal, while MLM is legal. A multilevel marketing model needs to have three things to be considered legal:
- A quality product or service
- A focus on sales, not a recruitment
- Income earned from sales of products or services
One of the other things to confirm its legitimacy is the commission earned should be solely based on the sales made by an individual rather than making money by recruiting other members. Remember an MLM offering low-quality products with a prime focus on recruiting individuals may be a pyramid scheme.
Quick Sum Up
Hopefully, you have now understood what is MLM, how does it work and whether it is legitimate. Researches suggest that most multilevel marketing companies lose money. This is because of the MLM pay to play feature. So before jumping into an MLM model, you need to know whether it’s a hidden pyramid scheme in the form of MLM, what does it offer or what’s the products’ quality or if it offers commission based on sales or recruits.
Disclaimer: This blog is written for general information on the topic.