MLM – Multilevel Marketing: An Overview

What is MLM?

MLM is a marketing method used by many direct marketing companies to showcase their products and sell services. The MLM approach promotes sale offerings and hiring more recruits into the business. It is also ideal for start-up companies and those looking to expand their business operations.

Multilevel marketing also shares a portion of the recruit’s sales with the distributors, which motivates the distributors to do better collectively.

Most MLM schemes are legal, but some, like those of pyramid schemes, are not. All the members of the business hierarchy earn something from these projects, which gives everyone a share of the profit.

Who Uses MLM and How Does it Work?

MLM is a popular method for large scale businesses that focus more on revenue. The MLM approach is different from traditional sales channels as they merge network and sales to create more revenue, which is why the approach is also called network marketing in many places.

Individuals become part of a business as contractors, distributors, independent business owners, and other significant role. These people have to sell the company’s products and services throughout their networks, including peer groups and social circles.

Interestingly, these sales can be physical or through an online platform in return for a commission for each network layer.

Moreover, the members try to expand the network by recruiting more members into the layers. Becoming a part of an MLM network provides members with incentives and a percentage of the profit made.

How Many Members are there in an MLM Network?

The MLM network can be virtually limitless, including hundreds and thousands of members. The members keep getting their profit share as long as the chain continues operations, and the profit ratio is directly proportional to the chain members.

Many experts also refer to this model as a pyramid, in which the person on top, typically the business owner, makes the most profit, and the remaining members get a share out of it.

Is MLM Legal?

MLM is legal, but there are some specific considerations that people should keep in mind. The pyramid business schemes take profits from the revenue to pay those on top of the pyramid, and it can make the top tier members take advantage of the developing members.

In addition, many of these top layer members pose as a legitimate multilevel marketing business. It is pretty easy to determine whether or not a company operates as a pyramid scheme by focusing on the business recruitment rather than the products they sell.

A few life examples of the MLM structure can help you understand how these businesses may look.

Bottom Line

Multilayer marketing is an excellent approach for businesses that wish to stay consistent with profit generation. However, these businesses can often manipulate recruits to pay the top layer members of the MLM network. Recruits should carefully analyze a company’s hierarchy and system before choosing it as a business option.