MLM-business-model

MLM business model

MLM (Multi-level marketing or network marketing) is a form of direct sales in which independent representatives sell products or services from a company to an end consumer.

Learn more about What is an mlm and how they work.

What is an mlm (Multi-Level Marketing or network marketing)?

Multi-level marketing is a distribution model companies use to get their product to consumers. Instead of directly offering their products to consumers online or in brick-and-mortar stores, they use sales representatives to distribute and sell their products.

Sales representatives typically work from home and buy inventory to sell at in-person or online parties. They aren’t considered employees; instead, each sales representative owns their business. The multi-level aspect refers to each representative ability to recruit and train other representatives to start their own business. As recruits make sales and recruit their own representatives, each person above them earns a commission.

Income earned in MLM comes from the commission earned on personal sales and a percentage of the sales earned by other reps recruited by you.

MLM also sometimes describe their structure as:

  • Direct selling
  • Social selling
  • Network marketing
  • Referral marketing
  • Team marketing
  • Consumer direct marketing

Is Multi-Level Marketing (MLM) Worth It? is mlm scams?

Whether an MLM is right for you depends on factors like whether you have the money to invest, your passion for the products being sold, and if the specific MLM you’re considering is legitimate.

You may have heard MLM referred to as pyramid schemes, which are illegal. For an MLM to be legal, it needs three things:

Before you decide to join an mlm company, you need to make a clear distinction between mlm company and pyramid scheme otherwise you will have a lot of trouble later if you choose the wrong business model or you can find more information on mlm reddit

  1. A quality product or service
  2. Income earned from sales of products or services
  3. A focus on sales, not recruitment

To be legal and not a scam, money needs to be primarily earned from the sales of products and services rather than the recruitment of new members. MLM programs with no or a low-quality product or a focus on getting paid per recruit could be an illegal pyramid scheme.

Legitimate MLM businesses are like any other business. If you’re interested in pursuing one, consider the following before you get started:

  1. Find a company that’s a member of the Direct Selling Association, which requires members to uphold a code of ethics. 
  2. Study the company’s history and compensation plan. Understand how money is made and their recommendations and support for marketing your business. 
  3. Treat your MLM business like a business, not a hobby, even if it’s a side hustle. MLM aren’t get-rich-quick schemes. Like any business, they require you to define your target market, reach out to your market, and make sales.

Therefore. 

  • Multi-level marketing (MLM) is a form of direct sales in which independent representatives sell products or services from a company to an end consumer.
  • Sales representatives typically work from home and buy inventory to sell at in-person or online parties. 
  • Getting started with an MLM is relatively simple. You sign a contract, buy inventory, then start selling. 
  • Whether an MLM is right for you depends on your finances, your enthusiasm for the product, and whether the company is reputable. 

By now, you probably understand what is an mlm so that you can make money with the mlm scheme

Is an MLM a good way to make money? 

Jon M. Taylor, Ph.D., founder of the Consumer Awareness Institute, set out to answer those questions by conducting comprehensive research and analysis of the compensation plans of more than 400 MLM companies.

More recently, the AARP foundation conducted a study that explores the mindset, expectations, and experiences of MLM participants and released the results in a report titled, “Multi-level Marketing: The Research, Risks, and Rewards.”

Both studies suggest that while it’s possible to see success with an MLM organization, it’s not common.

MLM Success and Dropout Rates

The AARP Foundation’s study found that 44% of participants dropped out after less than one year working with an MLM.

MLM-business-vs-Traditional-business
MLM business vs Traditional business

Taylor’s research shows similar numbers and goes into a little more depth on dropout rates:

  • A minimum of 50% of MLM representatives drop out in the first year.
  • A minimum of 90% of representatives leave within five years.
  • By year 10, only those at or near the top have not dropped out—which means at least 95% of representatives have dropped out.3

These numbers don’t bode well when comparing them to the average failure rates of small businesses. According to the U.S. Small Business Administration, about 20% of small businesses don’t make it past a year, about 50% of them last five years or longer, and about a third make it past 10 years.

Because of their poor success rates and other criteria, MLM businesses don’t qualify for SBA loans or other small business funding and assistance programs.

Investment Involved in an MLM

Taylor researched the investment required to launch an effective business-building campaign for a recruitment-focused MLM, or a company that offers compensation for recruiting a “downline” team in addition to selling a product.

He estimates a minimum of $25,000 in total expenses that include incentives, products, phone, internet, giveaways, computer supplies, advertising, and travel. To come up with this figure, he joined a recruitment-focused company and worked full-time with the business for a year. He did everything he was asked, from buying monthly training products to attending conferences.

If you decide to join an MLM, then treat it as a legitimate business—even if it’s a side hustle for you. Many reps struggle because they don’t do this. If you don’t market, sell, and do the activities that make money on a consistent basis, your business is likely to fail.

Today, those costs are greatly reduced. The internet, online training, flat-rate long distance and/or cell phone service, and free and affordable online marketing have made building any business, including MLM, much more affordable. 

In the more recent AARP Foundation study, 66% of the MLM participants invested less than $1,000 for inventory, training, and materials while they were with an MLM organization, 24% spent between $1,000 and $4,999, and 11% paid $5,000 or more, while 23% did not remember how much they invested. Only four people reported spending more than $50,000.5

Making Money in an MLM

Can you really make money in an MLM? The short answer is yes, but in reality, only a tiny percentage of representatives actually realize the high earnings advertised in MLM promotional materials and at meetings. Some people don’t make any money at all, and some people actually lose money.

Power-of-MLM-and-Digital-Network
Power of MLM and Digital Network

The AARP Foundation found that only about 25% of those it surveyed made a profit with MLM, 27% broke even, and about half of them lost money. Of the quarter that made a profit:

  1. 14% made less than $5,000
  2. 6% made between $5,000 and $9,999
  3. 3% made between $10,000 and $24,999
  4. 3% made $25,000 or more
  5. 05% made $100,000 or more

Taylor came up with a more bleak conclusion from his research: “On average, one in 545 is likely to have profited after subtracting expenses, and 997 out of 1,000 individuals involved with an MLM lose money (not including time invested).”

Important: Do your research. People make many mistakes when entering the world of MLM. Some don’t research the company or product. Others don’t read the contract they sign. Many newbies rely on the information provided by their sponsor. And 47% of the participants in the AARP Foundation’s MLM study said they did not receive a copy of the company’s compensation plan before joining.8 Gathering all of the details and reading all of the fine print before joining an MLM will help set you up for success.

How Multi-Level Marketing (MLM) Works

With an MLM, you typically are recruited by someone who’s already in the business. You may have attended one of their sales events and enjoyed the products.

Once you show interest, you may attend a meeting to learn more about the business. You’ll be asked to sign a contract and buy inventory. Once those steps are done, you can get started.

To understand how MLMs work, it also helps to be familiar with industry jargon, including:

  1. The plan: This is the overall program, including the company’s marketing and compensation plans.
  2. Sponsor: This refers to the representative who directly recruits another person into the business. For example, MLM member A recruits member B into the business. Member A is the sponsor and is responsible for training member B.
  3. Recruit: Also referred to as a team member, this is a person brought into the business by a sponsor as a new member. Recruits are trained by their sponsor or other more experienced representatives.
  4. Downline: These are the recruits brought in below you. This can include members you’ve recruited as well as those your recruits have brought into the business.
  5. Upline: This consists of the sponsors who came in before you. For example, if rep A recruited rep B, who recruited rep C, who recruited you, your upline is C, B, and A. 

Compensation plan: This outlines all the ways reps earn money. Along with commissions on sales made by you and your team, many companies pay bonuses and increase commission splits based on sales volume.

According to a survey of MLM participants by AARP, 47% reported they lost money, 27% reported that they broke even, and 25% reported making a profit.1

Is Multi-Level Marketing (MLM) Worth It?

Whether an MLM is right for you depends on factors like whether you have the money to invest, your passion for the products being sold, and if the specific MLM you’re considering is legitimate.

You may have heard MLMs referred to as pyramid schemes, which are illegal. For an MLM to be legal, it needs three things:

A quality product or service

Income earned from sales of products or services

A focus on sales, not recruitment

To be legal and not a scam, money needs to be primarily earned from the sales of products and services rather than the recruitment of new members. MLM programs with no or a low-quality product or a focus on getting paid per recruit could be an illegal pyramid scheme.

Legitimate MLM businesses are like any other business. If you’re interested in pursuing one, consider the following before you get started:

Find a company that’s a member of the Direct Selling Association, which requires members to uphold a code of ethics. 

Study the company’s history and compensation plan. Understand how money is made and their recommendations and support for marketing your business. 

Treat your MLM business like a business, not a hobby, even if it’s a side hustle. MLMs aren’t get-rich-quick schemes. Like any business, they require you to define your target market, reach out to your market, and make sales.

Key Takeaways

Multi-level marketing (MLM) is a form of direct sales in which independent representatives sell products or services from a company to an end consumer.

Sales representatives typically work from home and buy inventory to sell at in-person or online parties. 

Getting started with an MLM is relatively simple. You sign a contract, buy inventory, then start selling. 

Whether an MLM is right for you depends on your finances, your enthusiasm for the product, and whether the company is reputable. 

7 Reasons i love mlm

If you’re a network marketer, then I hope this article can inspire you to go for it and go big in your business, because you have an awesome opportunity. And if you’re someone who’s currently evaluating if network marketing or MLM is for you, then hopefully these 7 things can help you decide on whether to go for it or not.

Let’s get started!

1. Start-up Costs are Ridiculously Cheap!

One of the major barriers to business is capital. And with most MLM companies, you can start for as low as P5, 000 (although it can get as high as P30, 000). Now, those amounts may seem like a lot, but in comparison to other businesses opportunities, it’s very small. Franchising starts at P100, 000 (for food carts, for example) while the bigger establishments such as fast-food chains require capital in the millions of pesos already. If you want to venture into real estate, again you’ll need several hundreds of thousands for down-payment alongside going into debt for the rest. Now, to be fair, starting your own business MAY be cheap, but it usually turns out to be more expensive than what you expect because you’re trying things out on your own first the first time.

2. Training and Mentorship is FREE.

Learn-Marketing-Free-on-MLM
Learn Marketing Free on MLM

The second barrier of business is learning the right way of doing things – in other words, having a SYSTEM. This is the reason why franchising is expensive, because you’re buying a system that’s already been proven to be profitable. And the reason why most start-ups fail within the first 5 years is also because of the LACK of systems. You’re trying to figure things out – trial and error style. When I was starting up my online marketing business, I had to pay $2,000 just for one piece of training! (The training was great though, and I got my results).

But in networking, all the training and mentorship becomes available for FREE. You have unlimited access to people who are earning at your desired income level. Because if you end up earning (as a result of your upline’s training), then most likely he/she will earn royalty income from you! This is the only business that offers this kind of mentorship and training! In traditional businesses, you pay for training. But in network marketing, it’s freely available – heck, it’s even forced upon you!

3. It’s RISK FREE.

As an investor, I’m extremely aversive when it comes to risk. I’m always concerned about the downside if things don’t go according to plan. Now, starting a business is one of the riskiest ventures you can go into, because of the overhead costs. If you take out a loan, the bank doesn’t care if you make money or not, it just expects you to pay every single month. On top of this, add the costs of operation for rent, utilities, software, and salaries. This is the reason why most businesses fail, because the entrepreneur runs out of resources before he/she can figure out the right way to do business. Businesses can really suck your money dry until you figure out the right system. And no amount of reading/business planning can give you the right system, since theory is still quite different from reality. This is the painful truth of traditional business.

The MLM industry, on the other hand, has created a whole new system for doing business. The mother company takes care of all operating and overhead expenses, and it outsources the sales force to the distributors. So you have minimal risk! Even your product purchases have a money-back guarantee, so you can return your products if you no longer want to do the business. The only real cost here would be your time. Which is going to be spent anyway, whether you like it or not, right?

4. You Get PAID to EXPAND.

If you have a store whose sales are growing, how do you take it to the next level?

In the traditional business sense, it’s to open another branch to another good location. This would require another couple hundred-thousand in debt, and the risk of failure in that new location. Expansion is a very tough thing to manage, and is a common reason why you hear of successful entrepreneurs suddenly going into debt. Business was good, so they decided to expand by borrowing more money, but the next stores failed. So they ended up with no business and a whole lot of debt.

This is another reason why Network Marketing is such an interesting business. Here, you are getting PAID to expand. Expansion in this business simply means successfully training a new downline to duplicate your skills and results in terms of finding new business partners and customers.

I find it astounding that there is NO MONEY OUT when you expand! When you recruit and successfully train a downline – you will instead get to earn passive income from his/her production! The only thing you have to invest is your TIME! And even if the downline doesn’t produce, then you’re still safe because you’re not buried in debt! You just keep on finding new people to help and train.

5. Fast and MASSIVE SUCCESS is Possible and Attainable.

More-Friends-Relationship-with-MLM
More Friends Relationship with MLM

As someone who teaches investing in the stock market, I always say that everyone can be a millionaire. And you could do that by diligently saving and investing, saving and investing, saving and investing. Do that for 20 years, and no matter what kind of income you have (even minimum wage), you’ll still end up with more than a million pesos. Now, you can take that path if you’re willing to wait for 20 years or more before getting your dreams….

But if you want to become richer faster, then the only way (not counting inheritance and lotto), is through business. For any traditional business, I’d give an average of 5 years. They break even within the first two years, and start generating shareholder profits for the next few years.

It is only in MLM that I have seen incomes reach to the hundreds of thousands of pesos within the first 6 months, and millions of pesos within 3 years. I believe the reason behind this is the focus on duplication. You see, the leaders in MLM readily share everything they know so that their results can be duplicated. Less mistakes are made, and so success is faster. And income records are broken. I haven’t seen this kind of growth and consistency with any other industry.

6. The Culture is HYPER Positive.

When was the last time you were surrounded by positive people who were working towards their biggest and deepest dreams?

I recently paid for a $497 course just to be a part of like-minded people who want to achieve their goals in life faster… You see, success communities don’t come cheap. But in MLM, each and every meeting is like this. People of all ages, sizes, genders, backgrounds, and income levels – all gathered together to help and inspire each other in pursuing their deepest goals. I say, maybe Disneyland isn’t the happiest place on earth after all… it’s network marketing meetings!

7. Seeing Others Grow and EARN is PRICELESS.

Helping people through products and services is a common denominator of all kinds of businesses. So the more customers you have, it means you were able to help more people, and in the process earn more money. This is the undeniable fact of doing business.

In traditional business, it also feels great to give your employees the best salary possible! But of course you’ll have to manage that with your costs. In the balance sheet, everything you pay your employee in cash and benefits is an expense. So your mindset would be to give the minimum rate possible to acquire the most acceptable talent. There is a conflict between wanting to help and growing your business.

In MLM, this conflict doesn’t exist, because you don’t have employees. You only have business partners. And the more money your downline earns, the more you also earn! And seeing someone you mentored finally make their first P100, 000/month income… that’s truly PRICELESS.

I often ask the leaders in MLM on why they still do the business even if they are earning millions of pesos every single month. I joke that they could already retire and never show their faces in the office ever again! And the most common answer is because they still have to help their downlines achieve what they have achieved. Money is no longer an issue to them. They keep working hard at it in order to help more people. So you can’t pay them to stop working, because mentoring other people and changing their lives is a truly fulfilling experience that money can’t buy.

These are the biggest reasons why I love the MLM industry. I hope this article helped you appreciate the network marketing industry more. And if you’re currently evaluating whether you should enter into network marketing, then please get back to the person who is inviting you and let them know what you think!

To those who are already in the business, what are your reasons for loving this industry? Share them in the comments below!

Note: You will never receive offers to join any specific company. We respect you, your business, your company and the MLM industry as a whole.

What is an mlm? 7 Reasons i love mlm Business
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