For some time, there has been an ever present phobia associated with the term "Multi-level Marketing" or often called by it's acronym "MLM". This fear could often be compared to the same repulsive sensation one feels when in close proximity to a skunk. Like most fears in our society today, is this fear of "MLM's" based on reality, or is the true source of this phobia simply lost in a dark cloud of ignorance?
MLM's have existed for many years, and going back decades will often be associated with organizations such as Amway, Herbalife, and Watkins, etc. Each person, no matter where they are on the organizational chain builds their business through two key functions, marketing products, and recruiting new distributors (also referred to as Sales Consultants, Independent Business Owners, etc.) . These people all do the same basic functions, sell products, and recruit new distributors, living off commissions based on their own as well as the sales of people recruited in their downline. On close examination of the business structure, there is a markedly close comparison to the business structure of many non-MLM business and franchise agreements, where royalties are paid based on the sales of the individual franchise organization to the franchise owner, as well as the area or regional manager. In MLMs, there can be a vast number of levels of distributors receiving royalties or commissions from one person's sale.
Why then do most people get their back up at the sound of the term "MLM" or the words "multi-level marketing"? Truthfully, MLMs have an image problem that goes back many years. The business structure of MLM's has been duplicated many times over. Some have used the business model as a means to fraudulently make money. Many people see an MLM and immediately assume they are one in the same as a Pyramid Scheme, or a lesser known evil, the Ponzi scheme. MLM's while struggling with image issues have in recent years made vast strides in changing "their window dressings". Today you will see the products of public relations departments as you hear new businesses refer to themselves as "home-based business franchises" or the latest fever to hit the world, especially on the internet, is the wave of " affiliate marketing" groups. No matter the name, MLM's are identified by their business plan and structure.
So how does one quickly determine if they are faced with a legitimate MLM or in fact they have been duped into an illegal Pyramid or Ponzi Scheme?
In legitimate Multi-level marketing businesses, people earn commissions from the sale of products as well as from the enlistment of new distributors. If the only commissions offered by the program are for the recruitment of new distributors, then it's an illegal pyramid scheme. Products must be a part of the program for the business to be legitimate. If Distributors are required to buy more products than they are likely to sell, then it is considered a Pyramid or Ponzi Scheme which is illegal in many countries. It's important to say, that while in structure MLM's and illegal Pyramids look the same, and while both can receive monies for bringing in new recruits, the primary difference lays in one area. MLM's have a product line associated with the business which can be marketed in a variety of ways giving the individual business consultant the opportunity to stock the product or simply act as a salesperson working for a drop shipper. In MLM's the clear expectation is that the majority of the commissions earned will be from the marketing of products, not from the recruitment of or sale of memberships to new distributors.
When questions of legitimacy have arisen, the courts, upon examination have applied a simple determination to separate Pyramids from MLMs. The determining factor lays in the area of products sold. Precedent has been set recognizing what's known as the 70 of those products first. While some argue, this means selling to none distributors, some also allow this to include products Distributors use themselves as "Demonstrator Products". Both arguments have been successful in the Courts, and while one might wonder why the variance, intent must be considered, or at least somewhat added to the pot, to determine the final mix of the ruling.
The Federal Trade Commission uses further determinations to define as to whether or not a business is in fact a Pyramid Scheme. In the Commissions determination, Pyramid Schemes are a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme usually without any product or service being delivered. Pyramid schemes have existed for well over 100 years.
Closely related to Pyramid Schemes is another term often heard of, "The Matrix". The Matrix Scheme uses the same non-sustainable business model as Pyramids do, but here a person pays to join a large waiting list of people for a product which only a few of them can receive.
It's important to note, the Federal Trade Commission recognizes there to be a difference between MLM's, Pyramids, and Matrix plans with MLM's for the most part being legal. While MLM's are legal, the line between them and their illegal counterpart is not black and white, but covered in an array of contrasting shades of grey.
Ponzie Schemes are illegal "private - unregistered" investment programs which offer incredibly high returns for short term investments. These require an incredibly fast continuing influx of cash flow in order to survive, therefore using the MLM business model to accomplish such, and often collapse only to disappear before they are discovered by the authorities.
The success and potential for sustainability of Pyramid, Ponzi and Matrix Schemes all depends on their ability to disguise their program and confuse the investor long enough to get them to hand over their money.
So is the fear of MLM's reality based? Certainly, the general public has been burned by many illegal businesses, and while similarities do exist in the business models, it's important to realize MLM's are legitimate businesses, and people do earn real incomes from them. MLM's may not be for everyone, but they are certainly no less a serious business than the franchised coffee shop in your own neighborhood.
These two models are very important and you must understand the way it works in order to make the most money out of it.
Let's talk about multi tiered paid structure first.
Multi Level Marketing is a method of receiving compensation through different tiers of overriding commissions. The advantage of using multi tier compensation is that you get to leverage on thousands and thousands of downlines. Your direct downlines will be taking good care of the rest of the network if you play your cards right. But of course, it isn't as straightforward as it seems. Building a structure like this takes a lot of time.
On the other hand, affiliate marketing and joint venture promotions are very straight forward and you can get paid a huge commission - about 40% to 80% if you were to give sales to someone else. A 'super affiliate' is able to generate thousands of commissions by himself. You can build a list of thousands of subscribers and with a single email blast; you can get the word out to all these people and make thousands of dollars in a couple of days.
Let's look at the disadvantages of each structure now.
The problem with the multi level structure is that if all the downlines are not generating sales, you will be the one doing all the work - you might even need to do extra work and give 'spillover' for your downlines. On the other side of the coin, you do not get to leverage on your own team of affiliates if you are in affiliate marketing.
So the best way to get the best of both worlds is to combine the two models and create the ultimate Internet network marketing synergy!
Firstly, you can promote an online MLM program. People still get the benefits of making money from a multi tiered structure. But when you (as an upline) start training your affiliates to build a mailing list, everyone will be your joint venture or JV partner. When one releases a product, everyone else will come running and they will promote your product as an affiliate! And because everybody are in the same network, the loyalty is stronger as everyone is more willing to help one another because they are in the same company.
Using this method, even 'sidelines' in a network will be able to benefit each other and promote each other's info products - cross network. Making money in MLM has never been more fun!
Both James C. Tanner & Robin Rushlo are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
James C. Tanner has sinced written about articles on various topics from Family, Affiliate Programs and Religion. James C. Tanner, www.silent-wonder.com, www.whats-he-like.com is a retired entrepreneur, a former special Investigator, and a published writer.. James C. Tanner's top article generates over 9900 views. to your Favourites.
Robin Rushlo has sinced written about articles on various topics from Marketing and Communications, Internet Marketing and Coffee Advantages. "Dr. Robin Rushlo", is a well known MLM Radio personality and is nationally recognized as an expert in the network marketing business.He is the current host of the radio show, "Networking with the Blindguy"live daily from SEAD RADIO Network,providing Succ. Robin Rushlo's top article generates over 110000 views. to your Favourites.