What is Multi-Level Marketing and How Does it Work?

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Multi Level marketing, also known as “network marketing,” is a legitimate way of selling goods or services through independent distributors.

Generally, independent sales people do not receive a salary. Instead, they are compensated through commissions based on the sale of products, both for their own sales as well as on the sales of those they recruit and support. Legitimate MLM’s base compensation primarily on the amount of products sold – not on the mere act of recruiting. That is a key difference between Pyramid Schemes and MLM’s.

MLM plans are legal as long as the primary focus of the plan is the selling of actual products and services.

Commissions gained only by recruiting new members into the plan are generally outlawed. Consumers should be wary of MLM plans that promise big earnings with little or no effort, especially if such promises are accompanied by a “guaranteed” return on investment.

For most MLM plan distributors, the MLM is not their full-time job. Many participate to earn extra income on top of another career.

MLM plans help their distributors focus on building a sustainable business based on sales of the actual products and services to their customers, not to “downline” distributors.

They provide detailed information in writing to new and current distributors, including business plans, marketing information, financial reports, and independent references. In good MLM plans, the parent company should buy back unsold products or unused supplies at no less than 90% of the wholesale purchase price.

The differences between legitimate MLM and Pyramid Schemes are what makes one a legal business model that works for some consumers, and the other an illegal, money-losing scam.

Many MLMs are illegal Scams

Many MLMs are scams, in fact, apart from well-known international brands, there is a very large proportion of MLM schemes that are really scams. It is very sad to see that these MLM schemes really just prey on the vulnerable people; they are usually well-prepared, they can show you legal contracts, they can show you how it works, you can talk to their suppliers; you can even meet with their solicitors. In the end, it is one big group of scammers together. Once the company has declared bankruptcy, you are unable to recover any funds from them.

Here are 5 questions to ask when approached by MLM schemes:

magnifying glass near gray laptop computer
Photo by Agence Olloweb
  • 1. Where do you live? If you are such a successful networker, how come you are still renting a tiny apartment in Sydney?
  • 2. Show me the statements; show me the bank statements that you actually receive commissions and fees; usually they will dodge this by explaining how this is done through companies – etc, typical nonsense.
  • 3. Give me 3 referrals that I can ring, this is almost like a job interview. They can usually provide these, so be careful, but ask these referrals hard questions as well.
  • 4. I want you to pay some advertising and marketing fees. One way to eliminate bad business people is to ask them to pay a small fee upfront. These guys have all run away of course.
  • 5. Show me the products, it is ridiculous, they can waste your time the whole day and not even show you one product; that’s because they don’t even know what they are selling; and spend all their time trying to recruit.

Most people want fast and passive money, and that’s why they join MLM companies. However, they do not notice that according to statistics, most of MLM are scam-ful, and most of those who joined, end up getting scammed.

Bill Gates successfully made Windows the most popular operating system in the world because he did not sell it through MLM; successful cosmetics companies made good profits through their good products not through MLMs.

You do need to be dubious about MLMs before you join them, as not only are they not for everyone, there are many traps ; and you may end up losing your money and importantly, your relationship with your friends, colleagues and even relatives.

Successful MLM Networkers

There are, however, successful MLM professionals, but these are quite a small number; there are successful formulas behind their successes.

The only way to run a successful and profitable MLM business is through active marketing, promotion and there is a lot of effort involved, it’s not a simple sit and wait around passive income.

Some tactics that are quite successful:

white and black chess piece
Photo By Tamara Gak

1. Organize Sales Events

It is important to have a larger MLM organization to support you as they have marketing budget in place every year for promotions and sponsorships; not individual managed MLMs where the founders themselves can hardly survive themselves.

2. Utilizing Schools Networks

By large, MLM networks are popular amongst parents who are seeking a second income apart from their jobs. Schools are becoming a popular source to directly sell products, but you should be cautioned in doing so before you start selling to fellow parents, as you may soon become a person on black-list very soon.

The more subtle way is through brochures, there are parents who are directly selling toys, books and kitchenware; simply by distributing brochures through schools. This is a much better and non-invasive sales tactic, and schools sometimes will take a small proportion from the proceeds as part of their assistance.

3. Utilizing Parenting Groups

Similar to utilizing school networks, there are many parenting groups or activity groups such as Gymbaroos, Kiddie Gyms and Music Activity Groups. Once again, you can work with group coordinators to promote your products, this usually happens at the end of each school Term; or perhaps around special events such as Christmas seasons.

4. Local Stand at local meeting points

5. Utilize your websites

Websites are great platforms to achieve sales. On ebay, you can start selling your products or set up an online store. You can also utilize Facebook as it is designed for networking and use it effectively to recruit new people into your sales group or promote your products.

6. Direct Mailing

Direct Mailing is still a very effective way in reaching out customers, especially in today’s market where the Internet has dominated most of the marketing efforts; there are actually LESS companies using direct mailing now, hence the competition is actually lower.

In the past, we used to get maybe 20 junk mails a day, now this has been reduced to 1 or 2 even zero each week. This means, your brochure / catalogue will be more easily to catch attention from potential customers.

You don’t need to do the mail-dropping yourself, there are companies out there which you can outsource; they will print and mail-drop your catalogues in selective areas according to your budget.

What Direct Selling Opportunities are out there?

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Photo by John Schnobrich

There are numerous systems around; I will just go through some of the most popular ones worldwide. When it comes to “Multi-level Marketing” or “Direct Selling”, most people will associate them with Amway, Avon, Tupperware straight-away, all of them are American systems and have been around for many decades.

Personal Care Products

Cosmetics remains as the most highly sought-after direct selling opportunities; although this has been expanded to “personal care” products instead of just cosmetics, the range of products now include hair shampoo, herbal products, aromatherapy, even tissue boxes and cotton buds.

If you are considering this, one thing you should be aware of is your product range and their price range. If you are actually selling above the price in supermarkets or pharmacies; then why would someone, especially your personal friends or relatives buy them from you? This is a fast way to destroy your relationship with others!

One advantage when the concept of Direct Selling was originally introduced was offering consumers a choice to buy bulk amount products at discount prices than at stores, also free delivery which adds to convenience. You have to always remind yourself of these 2 advantages before you choose MLM as your next career.

Books

The 2 highly successful Direct Selling systems back in the 1980s were Encyclopedia. There are still popular systems out there providing individuals to direct sell books, especially children books; some are even exclusive to direct selling opportunities only. This is usually through an ordering system where you can fill out the catalogue to place your orders.

Insurance & Financial Products

Direct Selling used to be the most popular sale strategy adopted by insurance companies in Asia. There are also direct selling insurance products available in Australia, in the past, AIG, before it collapsed was offering a wide range of life insurance and investment products to a wide range of customers in Australia, especially the Chinese and Indian communities. Some insurance companies are now selling car insurance and life insurance products through MLM networks.

Toys and Video Games

These were usually associated with schools and playgroups, where you can place orders through schools. However, checking on these prices, some products are actually selling above prices. You can find them in the shops, but they do deliver directly to your home which is more convenient especially around Christmas seasons.

In North America, research has found that this seems to be the fastest growing MLM opportunity as the personal care products are reaching saturation with too many competitors. Another advantage in selling toys/video games are they do not expire, and you can always use different holidays like Easter, Birthdays, Halloween, Christmas as opportunities to sell them.

Health Supplements and Drinks

There are brands like Mona-Vie and Herbalife, both are well known brands for MLM systems. Sadly, these are also some of the worst scams occurring in the MLM industry, some health products have been compromised in terms of their quality, and many have actually failed to comply with safety checks. Another concern is these products are perishable goods just like food, you only have limited time to sell them.

As you can see, the word “Multi-Level-Marketing” is really about Direct Selling. 

man wearing brown cap in across menu board
Photo by Louis Hansel

Ultimately, you are the one in control, but do not expect to be a lazy, passive business. There are many advantages in joining a MLM system; but you have to achieve sales in the end, no matter how many people you recruit under your network, you have to make sales to earn your commission.

Multi-level-marketing continues to grow, and its significance is likely to become much more significant in coming years. Additionally, Multi-level-marketing is being adopted beyond just goods, and will be expanded into services as in the case of insurance and financial products.

Unfortunately, MLM scams will also rise consequently, and more MLM schemes will come out cheating on both consumers and networkers. But if you research in-depth about these schemes, these scams can be prevented easily. If you are creative in sales & marketing ideas; as well as able to develop your own networks, then MLM is certainly an income producing opportunity, not just passively but can be your main income producing opportunity.

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