9 Things To Know About MLM Companies – Multi-level Marketing

In these difficult times, it’s no longer enough to hold on to every single penny. Some situations demand that you look for a secondary revenue source to survive and thrive.

Multi-level marketing, or MLM, is considered by many to be one of the best ways to earn while keeping your current job. Also known as network marketing, MLM involves selling products directly to end users. On top of selling, you’re required to recruit additional members. These two principles have made select MLM companies highly profitable worldwide.

If you’re eyeing to become an independent distributor—as what direct sellers of MLM products are called—there are a few things you need to consider. Foremost of these is the company’s stability and reputation. In this article, you’ll learn more about how network marketing firms work so you’ll know when to take the plunge and become a member.

MLM Business: What It Is

Behind its fancy logo, a multi-level marketing business is a form of network marketing that merges selling and recruitment. Instead of using advertisement channels, recruitment is typically done by obtaining referrals, getting and following up on leads, and turning to affiliate marketing.

Unlike retail sellers, MLM independent distributors offer products to consumers and earn from it since they get those items at discounted prices. They also earn by asking more members to join, earning a commission for every referral.

How It Works

At face value, it’s easy to amass cash from an MLM business model. That’s because you typically have a product in exchange for a new member’s payment. Most network companies work this way, and it’s what separates them from highly controversial and illegal pyramid investment schemes. You may ask yourself, ‘Is Amway legit?’ if it’s your first time to encounter the company and you don’t know if they have physical products. Just an aside, Amway is said to be the highest-grossing MLM company, yielding USD$8.4 billion, based on industry estimates.

Independent distributors earn a commission for each sale. They can also increase their revenues by recruiting a new member or a downline who’ll sell products and recruit new members, too.

How You Can Track Your Earnings

Network companies these days ask their members to download an app to keep track of their revenues. Most companies implement a point system in their revenue structures, and these apps are preprogrammed to reflect your earnings, usually through points.

These points are gained from recruiting or sales. Points represent a currency that members can exchange for cash or products, depending on the terms set by the company.

The Compensation Schemes

MLM members are paid based on the following payment systems:

• Binary MLM: This recruitment and direct selling payment scheme involves a member recruiting two more members, also called downlines. Each of the new recruits needs to enlist two members, and so on.
• Monoline MLM: As the name implies, a member is added one at a time to a person’s network of recruits. All upline members in the network earns as each individual is added to the group. In this level, uplines are lucky if they have a downline who can recruit actively.
• Unilevel MLM: If the monoline system succeeds through vertical expansion, a unilevel’s growth stretches horizontally. A member can recruit as many persons as they can, but each member of the group shares the reward equally.
• Matrix MLM: This compensation plan imposes limits to the earning of each member depending on the length of time spent in the organization. Also called a ladder matrix plan, this is one of the more common payment schemes because the company has better control over other payment schemes.

The Drawbacks To MLM

Every MLM company has its own set of terms and policies to earn money. Some firms have come up with innovations to existing business models implemented by other more established and successful network marketing companies. As a result, some MLM ventures are accused of setting high investment costs and focusing on recruitment rather than sales.

 

In other firms, independent distributors are required to reach a specific quota for the number of recruits and sales. In some cases, these sellers may be required to purchase slow-moving stocks, leading to an additional expense that a seller may or may not recoup on time.

Additionally, some companies impose better returns for recruiting new members rather than moving stocks, blurring the line between MLM and pyramid scheme practices.

How It Is Different From A Pyramid Scheme

MLM is a completely legitimate business model. If done properly, it can become highly profitable; there are people who claim to have received a heavy windfall because of it.

Pyramid schemes, on the other hand, are deemed unlawful because they don’t offer anything in exchange for an investment—just a promise of higher returns, which are often mathematically impossible. The uplines reap all the benefits, while the downlines are placed in a shaky position. Sooner or later, the earning capacity of downlines becomes limited until it vanishes.

 

What To Do Before Getting Involved

Due diligence is needed before investing your hard-earned cash in MLM companies. Do your homework and conduct extensive research about the company you’re planning to get involved in.

Perhaps the most important element to look at is how transparent the firm is. Ideally, it should be listed on the stock market. A publicly traded company must divulge their quarterly earnings, allowing the public to see and analyze their financial soundness. A company that has been present for decades and produces products you personally use is also a good choice.

The Red Flags

Likely inspired by the success of other MLM companies, network marketing firms have proliferated, especially online.

Check whether the MLM firm has negative ratings and reviews, is using false advertising, or is facing any lawsuits. There are sites you can use to check the legitimacy of an MLM company.

The Federal Trade Commission (FTC) presents a good reminder in spotting an MLM scam: if the earnings are heavily hinged on recruitment and not on moving products, then it’s likely not MLM but a pyramid scheme, which is an unlawful way to make money.

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MLM companies employ diverse tactics to attract members and expand their business. A great majority of individuals are skeptical about the system, while others have claimed to succeed in becoming an investor.

Either way, it always pays to perform due diligence before parting with your hard-earned cash. Check sites that specialize in spotting scams. Read reviews and take heed of the red flags discussed in this article.

And, as with other things in life, always remember that if an offer is too good to be true, it probably is.