What is an MLM?

Answer 1

Multilevel/Network or Direct Marketing plans are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you'll receive commissions - for your sales and those of the people you recruit to become distributors. These recruits sometimes are referred to as your "downline." In a typical retail store purchase 80-85% of the retail price is actually the cost of distribution of that product. With Multilevel/Network or Direct Marketing that 80-85% portion is used to pay out the commissions to the network. This is probably the most misunderstood aspect of Multilevel/Network or Direct Marketing.

Most multilevel marketing plans are legitimate. However, others are illegal pyramid schemes. In pyramids, commissions are based on the number of distributors recruited. Most of the product sales are made to these distributors - not to consumers in general. The underlying goods and services, which vary from vitamins to car leases, serve only to make the schemes look legitimate.

Joining a pyramid is risky because the vast majority of participants lose money to pay for the rewards of a lucky few. Most people end up with nothing to show for their money except the expensive products or marketing materials they're pressured to buy. The Federal Trade Commission defines a Pyramid or Ponzi scheme as the exchange of money with no product changing hands or real service being performed.

If you're thinking about joining what appears to be a legitimate multilevel marketing plan, take time to learn about the plan. What's the company's track record? What products does it sell? Does it sell products to the public-at-large?

Can you purchase the products without becoming a distributor? Does it have the evidence to back up the claims it makes about its product? Is the product competitively priced? Is it likely to appeal to a large customer base? How much is the investment to join the plan? Is there a minimum monthly sales commitment to earn a commission? Will you be required to recruit new distributors to earn your commission?

Be skeptical if a distributor tells you that for the price of a "start-up kit" of inventory and sales literature - and sometimes a commitment to sell a specific amount of the product or service each month - you'll be on the road to riches. Often consumers spend a lot of money to "build their business" by participating in training programs, buying sales leads or purchasing the products themselves. Too often, these purchases are all they ever see for their investments.

MLM means Multi Level Marketing, a form of direct selling first made acceptable and legal by the Amway Corporation. Prior to Amway's successful court case in 1979 many people regarded MLM as a Pyramid scheme. (A now illegal structure for unloading product at inflated prices to gullible wanna-be entrepreneurs)

Multi Level Marketing companies provide an incentive commission structure of multiple levels. So a distributor can not only earn commission for his/her sales of product but can also earn an overriding commission from the sales volume of other distributors personally introduced and further introduced down multiple levels.

Each MLM with have it's own compensation plan which can vary greatly for one company to another.

Other names used for MLM include Network Marketing, Referral Marketing, Binary Marketing and so on.

The advent of the internet is changing the industry greatly. Now becoming known as InterNetwork Marketing, clever distributors are dumping the old myths that led people to believe they had to hassle all their friend and relatives. The modern MLM'er can utilize the internet to attract interested distributors nowadays.

If you ever have any doubts about a particular Multilevel/Network or Direct Marketing company there is a website that alerts visitors of the schemes out there as well as highlighting the legitimate companies. The website is http://www.mlmwatchdog.com/ and is a great resource.