Dear readers, I’m taking a bit of a stand today in reaction to some comments online recently that lumped mlm-types of businesses in with illegal scams and other things to be avoided.
Let’s clear the air…mlm or multi-level marketing…is not a bad word, phrase or thing. It is a business model. A system of doing business. Period. That’s it.
What it is: The Linda’s Business Blog definition:
- multi-level marketing is a network or relationship business model that utilizes a team design to maximize the sale of product(s)
- product(s) are sold person-to-person
- team growth is achieved by one person telling another person about the income opportunity
- income is generated through direct retail sale profit and through total team sales volume
Each and every person in the team is an independent business person (distributor, contractor). However, the team generates team sales volume for which team members are compensated with commissions. Here’s how one example might work:
- I am sponsored into Business A. I buy the product and use it myself. I don’t get sales commission for what I buy for personal use, but my sponsor does get sales commission because I’m on her team (downline). However, my personal use volume is used to my advantage to qualify me to receive commissions should I have a team.
- I also sell product to retail customers. These are people who have no interest in being business people, they just like my product and to get it, they have to buy from me [because this product is not sold through a retail brick-n-mortar store]. I receive retail profit [difference between the retail price and the wholesale price].
- I sponsor Joe Person. Joe Person buys the product and uses it personally. Joe also sells retail. And Joe sponsors someone. Joe will receive sales commission on that person’s sales volume (both personal and retail) and I will receive sales commission on Joe’s total team volume. Hence the whole idea of a downline.
The KEY here is sales volume. A multi-level marketing business or network marketing business or direct selling business relies on sales of product. No sales of product, no commissions. Also…and this is key…it is each distributor’s choice on how to build his or her business: you can, if you wish, have a strictly retail business – never have a downline…it is your choice. Yes, there are incentives to sponsor – why wouldn’t there be? The goal of the parent company is to, after all, sell its products…the more distributors, the more product is sold. So, you can choose to build your business with a downline – or team as well as retail sales.
I personally think that this business model has been tainted by the spector of pyramid and ponzi schemes. Good grief ladies and gentlemen, there will always be bad people who do their utmost to dirty the pond for the rest of us. That doesn’t mean the pond was bad, only those who put their dirty boots into it. The pond can be cleaned.
Funny thing is, there are two ways of thinking about pyramid models. One is actually the epitome of the corporate structure: CEO sits on the top making the largest paycheck, and the foundation of the pyramid are the hundreds or thousands making minimum wage. Now that’s a pyramid.
The bad pyramid or ponzi schemes are perpetrated by nefarious people who only want your money. They say it’s a business but require a large buy-in and want you to recruit people because that’s how you’ll make your money. Well, in a legitimate business you make no money whatever for sponsoring…the signin fee goes not to you, it goes to the parent company. You only make money by working your business – generating sales volume.
Now here’s another point: an mlm, network marketing business, direct selling business…is a business. It’s not a get-rich-quick scheme because you actually have to work at it. There’s nothing magic or automatic about it. For instance, to make a retail profit, you actually have to sell your product to someone. To make a sales volume commission you actually have to sponsor people who themselves are interested in a business for themselves.
Scott Allen, over at About.com has a great article about this very issue. He says “…Network marketers who are serious about building a business should be reading and learning about business fundamentals, the latest sales and marketing techniques, strategies for networking and business development, etc…. Act like a small business owner, and people will treat you like one….”
- yes there are people who do not make much money with a network marketing business…the flaw is not in the business model, but in the ways in which the individual person approaches their business
- yes you do have to sell product(s) – to make retail profit you have to sell your product to someone; if this is the type of business you want to have, you will have to learn how to sell
- yes you will have to share the income opportunity with other people IF you want to build a downline team
Scott Allen also says that the “…interest in network marketing is at an all time high….”
Here’s the thing: yes, some people have had bad experiences with mlm-types of businesses. [Some people have had bad experiences in a corporate business.] That does not make mlm a bad business model because millions of people are selling millions of dollars of products and services through network marketing businesses. If you are interested in knowing more about the legality of mlm check out the U.S. Federal Trade Commission website.
Filed under: Direct Selling, Home-based Business, Network Marketing | Tagged: business, direct marketing, Direct Selling, distributor, Federal Trade Commission, home-based business, independent distributor, mlm, multi-level marketing, network marketing |