What is MLM?
MLM is an acronym for
Multi-Level Marketing, sometimes called Network Marketing.
As the name suggests, multiple levels of people are marketing a
product to consumers. A sales representative (also referred to as a distributor,
member, affiliate, partner or associate) gets customers and recruits
and trains another sales rep to get customers.
Sales rep gets customers
and trains another sales rep to get customers
Multiple levels of marketing are actually what all companies
desire (both MLM and non MLM companies). If you’ve ever heard a traditional
company announce, “Refer a friend and you’ll receive a discount on your next
purchase,” this is multi-level marketing. Health clubs, real estate,
telecommunications, and countless other industries use this technique.
Professionals (doctors, dentists, accountants) live or die based on their
customers telling others about them. All these businesses are simply trying
to get current customers to advertise and market their product or service to
potential customers.
MLM
plans are legal under state and federal law, 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 efforts, 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.
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MLM's are also known as:
- direct selling
- network marketing,
- affiliate marketing,
or
- home-based business franchising plans.
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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.
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The Traditional Company
In a non-MLM company, a sales manager and sales reps are hired
by the company. The company is limited to the number of sales reps they can
hire based on the financial resources the company has to pay salaries and on
the traffic the sales manager can handle. Once a sales manager is
overwhelmed, the company can hire another manager or convert a sales rep into a
manager. This could be called “Multi-Width” marketing because it expands the
organization horizontally as compared to “Multi-Level” marketing, which expands
its organization vertically.
Traditional companies
(non-MLM) use “Multi-Width” Marketing
The MLM (Multi Level Marketing) Company
An MLM (Multi Level Marketing) company “starts” by recruiting
one person who gets customers and recruits sales reps (just as above in the
traditional company). But each sales rep is also given the option to become a
manager, who can also recruit sales reps. The MLM company only pays
commissions, not salaries; therefore, there are no limitations on the number of
sales reps or managers an MLM company can recruit. This is beneficial to the
company because of rapid expansion by the number of trained sales reps. This is
also beneficial to the sales reps because their income isn’t limited to only
what they can sell - they can also earn commissions for having trained other
sales reps.
MLM uses “Multi-Level”
Marketing, which is similar to traditional marketing (see above illustration
“Multi-Width-Marketing,”) except there is no limit to growth.
Very simply and factually, MLM (Multi Level Marketing) is one of
the five main methods used by a company to sell and distribute a product or a
service to a consumer.
All companies (MLM or traditional companies) have one main
characteristic in common: they provide a product or a service that hopefully
makes a consumer’s life better. Once a company has such a product or service
they need to make it widely known. They do this by distributing
it. Distributing a product involves finding customers and getting the product
in their hands. There are five primary ways to distribute a product or service:
The Five Primary Ways
to Distribute a Product or Service
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STORE FRONT
Company rents or buys a
store in busy area to get walk-in traffic. Hires sales person to communicate
with customers who walk in.
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DIRECT
MAIL
Company buys
addresses. Hires marketing person to write and send written communication
about products and or services through the mail.
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TELE
MARKETING
Company buys
telephone numbers of prospects. Hires and trains sales people to call and
sell products/services via the phone.
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INTERNET
Company puts up a web site and advertises to get traffic. Similar to direct
mail, the marketing occurs through written communication.
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MLM
Company recruits a distributor (sales representative) to sell products.
Grants sales person right to recruit other sales reps to sell products.
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Each of the five methods above can use techniques from one or
more of the other methods to get customers. Meaning, a Store Front isn’t
limited to only walk-in traffic. The Store Front can also advertise on radio,
television and in newspapers, magazines, and mailers (post cards, flyers, etc.)
directing prospects to the store location. This can increase the number of
people walking into their store.
Similarly, a distributor in an MLM company can use some or all
of the 4 other methods as well as getting customers through friends and family.
And of course an owner of a store front (such as a restaurant) can also tell
his friends and family about his store!
So what is MLM (Multi Level Marketing)? The main point to
understand is that distributing any product means to make it known. MLM
and the other four primary ways to distribute a product are simply methods used
to make a product known.
MLM is Organic
Organically, the MLM industry is a fantastic model. By
“organic,” I mean that if you strip away all the hype and noise and just look
at it conceptually, it is the purest way to move a product to a consumer and
the purest way to be compensated. Here’s why…
1.
In its organic state one person shares a valuable product or
service with another (not because they will profit, but because the product is
valuable). “I like it, maybe you will too.” That is clean and pure.
2.
A person shares a business idea with another - this is the
foundation of all businesses throughout history. “I found a business I like and
maybe you’d like to work on it with me.” That too is clean and pure.
3.
The person who shares the business with another ONLY profits IF
the person they shared the business with succeeds - that is ultra-responsible,
which is also clean and pure.
Those three steps are the organic concepts of MLM and are
absolutely brilliant.
If you strip traditional marketing down to its core, it would be
a person writing an advertisement and 98% of the people who review the
advertisement not responding (a top marketer gets a 10% response; the average
is 2%).
Look around and see what all it takes to move a product to the
consumer in the “traditional” sense, and you’ll see a lot of wasted actions and
resources. Can you imagine how pure a city would look if there were no
advertisements? Think of the number of trees that get consumed in the name of
advertising, and the materials that then end up in land fills.
Perhaps a good way to describe MLM is to demonstrate how MLM is
the same as a traditional company, and also how MLM is different. Look at this diagram
for a visual.
Please understand that I am not criticizing the use of trees,
the cluttered environment, or advertising - I’m simply asking you to look at
the amount of unnecessary actions that go into moving a product to a consumer,
as compared to the simplicity of one person communicating with another.
