The MLM Business Model
Multi Level Marketing Principles
Multi level marketing or MLM is a business model that creates an opportunity for the average person, who is teachable, and who has desire and perseverance, to earn extra income from the comforts of their home. Legitimate multi-level marketing companies usually require a small start-up cost. Multi-level marketing relies on selling to consumers and establishing a market for quality products. That is, once you have a happy customer (customer service is one of the things reps get compensated for, a potential reason it’s not easy or to everyone’s liking, and may be a reason so many don’t succeed), you can rely on repeat sales and repeat commissions. In the majority of multi-level marketing programs, commissions are paid way down the line so the more people you and your team bring on, the better.
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Gilbert Torres on December 23rd, 2007 at 9:38 pm
There are stark contrasts between traditional businesses and unconventional MLM businesses. The much maligned pyramid structure is neither unique to MLM nor is it in itself illegal. Conventional businesses are pyramidal in structure, too. That is, profits generated by their employees go “to the top”, to the business owner. There’s nothing wrong with that. It is the tried, tested and accepted traditional business model between employer/employee relationships in America.
Here’s a brief scenario for those who cry, “that sounds like one of those pyramid businesses where all the money goes to the guy on top”.
Suppose you accepted the position at XYZ, Inc., as a computer technician for $2500 a month. Many people would say that is not bad pay. My question
is, “You don’t really believe the $2500 XYZ is paying you is all the profit they are earning from your labor do you?” Nobody would believe such a thing. Where do you
suppose the rest of the profit went: To your buddies on the floor you brought in to XYZ? Again, no. The profit flow goes “to the top” to the XYZ owners.
What MLM businesses allow is for individuals to determine how big and how fast their organization grows. The employee in the conventional business model will not likely ever hear their manager say, “I’m going to help you pass me up”. When an employee moves up to that place once occupied by their manager it is because that individual has long since left or moved ahead. The MLM entreprenuer who hears a newcomer to his organization announce, “I’m going to pass you up” is not threatened. They will more likely respond with, “Let me help you”, because the newcomer’s success is the entreprenuer’s success.
The conflict some MLM businesses may get caught up in with the law is not that they are pyramidal in structure, but that they have neither a product nor service to offer, legitimately. The point about, “legitimately”, is as qualified by the FTC to stop scams whose “product” was the “How-To” 2 or 10 page photocopies they would send the members for them to sell to all who are willing to make the investment (usually a ridiculously small amount, but when it’s in the context of a network the yield can quickly become enormous) on a “How to make billions on the Internet easily and quickly” manual.
Compensation of network members comes in three different forms and still be in compliance with state and federal regulations.
The first is through personal productivity involving sales or service as a company independent representative.
The second is income generated by those individuals they bring into the network, personally. This is what is commonly referred to as, “residual income”. This income is paid out by the company to the representative and is never collected by the individual. There can be no compensation for bringing in, or recruiting, new network members. That is a violation of state and federal regulation.
The third way members receive income from their network is in the form of override bonuses paid out by the company. This is in the form of percentages
paid out as the member’s organization reaches specific thresholds for the company. For example, the company starts paying out 1% of $1000 every month once the organization’s sales generate $1000 revenue for the company. These bonus payouts are not limited to those individuals brought into the network by the entreprenuer, personally. This is the much spoken of, but grossly misunderstood, “infinite” downline. These are recurring bonuses and not one time. As the organization reaches greater revenue thresholds for the company it pays out override bonus rewards to the entrepreneur.
Finally, MLM businesses do not qualify as “business opportunities” as far as state and federal regulations are concerned. The threshold for what constitutes a business
opportunity is something (I can’t remember) around $400 for purchase of a membership in the MLM, franchise or private franchise, all synonyms.
Roosevelt Cooper on January 7th, 2008 at 3:01 pm
The key to success in MLM is that you first off must be sold on the product. One of the biggest mistakes that I see most new distributors make is that they join because of the compensation plan. I don’t care how good the compensation plan is, if you are not excited about the products, you aren’t going to be able to get other people to purchase the products. If you can’t get other people to purchase the products, you certainly can’t get other people to get other people to purchase the products. As a result, you will not make money in MLM.
Therefore, I recommend whenever someone is looking at what MLM company to get involved in, first off make sure that the product you are offering is something that you would purchase even if there was no business opportunity attached to it. If you can answer that question positively, you are already far ahead of most distributors who just get in to make money but have no passion for the product.