Firstly, the boring definition part – of course the simplest way to answer this question, is spelling out the acronym – MLM
Technically and pedantically speaking, it’s not a program, it’s a marketing strategy but is sold as a program to people who want to buy in and become members of the scheme. It can also be known as network marketing.
It can be separated into two parts. Firstly ‘business owners’ or ‘distributors’ who generally buy into the business, can profit from selling the product from the company (direct selling) AND by recruiting other people to join the company and become ‘business owners’ themselves.
Topline, the theory is based on a binary system (a bit more below) where you make money from the sales that the people you recruit into the business make and from their downlines too, so it grows exponentially as your team grows.
Difference between MLM and a Pyramid Scheme
It’s important to note that Multi Level Marketing is not the same a Pyramid Scheme. MLM is legal and Pyramid Schemes are not. I will cover this in more detail in another article but the essence of this is that legitimate MLM schemes must, by law, provide good enough products which make it possible for their sellers to make money simply by selling the products. They should not have to recruit people to join the scheme to make money.
So that’s the boring definitions over and done with. Let’s delve a little deeper and see how they work.
The MLM binary System
This is the system that is used to describe the way a MLM scheme is put together, and can be known as a binary compensation plan. The plan makes it possible for business owners to have just two downlines in order to take part in the compensation plan. Hence the word Binary.
I will try not to get into the nitty gritty of this compensation plan, but it’s useful to have an overview. Have a look at this video to find out more. He explains it well, which is why I chose this video to add to the page, but at the end is a link to a MLM scheme, and I wouldn’t recommend you sign up for this one!
Where have they come from?
The industry is relatively new, and only been around for 65 years. Amway is one of the flagship MLM schemes and has paved the way in terms of regulations and how the foundations for MLM has developed. In 1979, a ruling but the Federal Trade Commission ruled that Amway is a Multi Level Marketing scheme and NOT pyramid scheme.
This ruling has given hundreds of MLM companies the business model to develop MLM strategies that pass the regulations, so you will find this structure frequently. Many MLM companies are keen to point out that they are not pyramid schemes.
With these regulations MLM companies have been stringently monitored and there is now more legitimacy to a system which in the past was fraught with scams.
Why the bad Rap?
MLM has traditionally had quite a bad reputation. This has been well deserved in some cases where illegal pyramid schemes have meant that business owners (distributors) have lost out. It is important however to point out that things have really changed, and there are some really strong legitimate businesses out there where you can make real money. Let’s have a quick look at why the bad reputation is there and its so hard to shake:
- Direct selling can be difficult. As a lot of these schemes ask you to invite your friends and family to join the schemes and to buy from
you. This can be awkward and can put a strain on friendships. Instantly those friends and family have a bad impression of the MLM scheme.
- High initial start up costs can make these schemes costly to get involved and require a large initial risk
- Some cult like techniques for getting people ‘fired up’ about their business
- Some MLM schemes have promised to get you rich quickly. When you are legitimately building your own business you have to put in the hard work and the hours to get there, any other promises have to be scam! This get rich quick message has been seriously culled more recently with the legislation within this industry. Yes indeed, historically, some people have got rich, really rich, but a lot have only earned enough to make a small part time income for all their hard work.
- A lot of scams in the past have meant that business owners have parted with money only to find it so hard to sell the products and to recruit anyone into to the business, they have been encouraged to buy MORE support, MORE marketing materials, sometimes MORE product and spend more money. Essentially paying to get paid. This is where the confusion with pyramid scheme occurs.
How do you get started in MLM?
First do some research and find a product that interests you. If you have to direct sell, then you need to be convinced by the product. This is where companies have been labelled as scams in the past. Where the product is not good enough to sell for the generally inflated prices that people are trying to sell them for. Have a look at the list below of the top companies out there. It’s good to have the power of a strong brand behind you if you want to sell. Things become more difficult if you have to educate people on the product before you sell it.
This is an outline of generally what you area expected to do to start becoming what they generally call a ‘business owner’.
- You will be asked to register for more information, if you are searching online.
- Normally you would be contacted by a sales representative, sponsor, upline, (whatever the definition) to talk to you directly about the scheme and answer any questions, so have these ready. This person would most likely become your upline / sponsor
- To get started you would usually be expected to buy a welcome pack of sorts, which contains your starting information such as training, marketing materials, support and products to try if this is relevant to the scheme you are looking into. Thes pack vary in price but you are looking at roughly $100
- Then you can get started reading the training and asking questions, and setting up your business
The best known Top 5 MLM companies
Perhaps taking a look at the best known companies might give you an idea of how MLM might or might not work for you. I can’t vouch for them in terms of reputation but they are the best known. As I mentioned before, having a strong brand behind you with reputable products does make selling easier to do
- Herbal life: This company sells a range of energy and fitness products, from vitamins to meal enhancements. See my review of this business here
- Amway: They sell 5 different product ranges including beauty products, vitamins and weight management products, They have had a bad reputation in the past, sometimes known historically as scamway! Sometimes this reputation is hard to shed, but they say their products have improved and their business offering is a lot more appealing.
- The Pampered Chef: A direct seller of kitchen tools. Here business owners host cooking shows where the tools are used to create simple but delicious recipes
- Forever living: Direct selling of Aloe vera-based drinks and bee-derived cosmetics, nutritional supplements, and personal care products. See my review of this business here
- Shaklee: Direct selling of nutrition supplements, beauty products and household products.
Things are a little different today
There are definitely some really good business opportunities out there for someone interested in starting one of these businesses, and they are ever increasing in popularity. MLM really is big business where around 16m distributors (business owners) generated sales of almost $30 billion in the US. If you are interested in this type of business, just make sure you do your research!
Taking it into perspective
It is possible to draw some comparisons between Multi-Level Marketing and Affiliate marketing, on some grounds. Affiliate Marketing in a nutshell, is selling other people’s products online, through links in your own blog or website. Find out more about affiliate marketing here. In both cases you do not need to have a product yourself to sell, you are essentially selling other people’s products. However affiliate marketing has a significantly more positive reputation than MLM.
The main difference between these two principles of marketing are that MLM tend to require you to sell to your friends and personal connections, but affiliate marketing is online so you are selling to an entire world potentially. Plus you can remain faceless behind your computer.
In this situation you are not forcing people to feel awkward enough to buy from you, they can choose whether they say yes or no, without your pride being hurt or friendships becoming tattered! In addition, the business owner of an MLM product actively seeks out the consumer but in affiliate marketing the consumer is seeking the product, so there are no old calls, and no sales push, just interested customers. Most of the hard work is then done.
Some affiliate businesses have an educational element to them, such as teaching you how to run ads, or make Facebook pages to run your business from. Some have amazing training with 1000’s of tutorials to teach you how to build your entire affiliate business from scratch including creating your own website and to get it rated very highly on Google. Including a high network of people to help you grow your business and provide you with feedback and tips on how to proceed. Here’s an example of one of the best affiliate networks that I am aware of, Wealthy Affiliate.
If you have any questions at all about this article, please let me know and I will get to you as soon as possible. Good luck!