What is Multi-Level Marketing?

 

Multi-level marketing, also known as MLM or Network Marketing, is an alternate channel for a manufacturer to advertise, sell and deliver its products to market. The other channels include retail storefronts; catalog shopping, and door-to-door sales. Depending on the particular company, the MLM channel may provide both word-of-mouth advertising and distribution.

Q: Why would a company choose the MLM route to product distribution?

There are several good reasons: The first is low overhead. There are virtually no up-front advertising costs. Unlike a typical retail company, the MLM Company doesn't have to spend massive amounts of money to obtain customers. Instead, it pays consumer/dealers to "expose and push" the product out into the marketplace.

In addition, the company only has to pay the dealers for “results” -- that is, a percentage of products actually sold.

The Typical National Brands Company spend from 30% to 45% of their gross annual sales for advertising. Therefore, a company that does 25 billion dollars in sales may spend up to 10 billion dollars on advertising. MLM companies typically pay from 40% to 60% of their sales volume to their dealers for their consumer-to-consumer sales efforts. This is basically their form of advertising.

MLM companies have low distribution overhead. Typical retail companies generally use a series of national, regional, state, and local warehouses to distribute their product to the retail stores. Each of these intermediaries wants to make a living, and marks up the cost of the product. Many products which cost no more than 15 cents are sold retail for as much as $3.00. This retail price is necessary to offset all intermediary costs from production to retail. If a typical MLM company sold a product that cost 15 cents, the retail would be about $1.35 and the company could still show a reasonable profit after paying a total commission of 50% to it’s dealers.

A well-managed MLM company can grow at an amazing rate -- as much as 20%, 50%, and even 100% per month in the beginning. (In fact one of the biggest reasons for MLM company failure is inability to keep up with explosive growth.) It would be difficult or impossible to generate this kind of growth in an overcrowded retail market. There are hundreds of thousands of products cramming the shelves of retail stores. It's almost impossible for a new product to make a dent in the market, unless the company spends megabucks on advertising. Also, many MLM products need more explanation than can be done in a 30-second TV spot. A person-to-person word-of-mouth campaign can solve both of these problems. For the individual, MLM can offer an opportunity to build a part-time income source that can, with the proper effort, grow into a significant income. With hard work (and a little luck) a person can earn incredible incomes.

MLM is all about "a lot of people doing a little bit." In MLM you are rewarded for the sales you create, not only directly, but indirectly as well. You get profit for any retail sales you make, plus you get a bonus or override on the sales made by people you enrolled into the company, and people they enrolled, and people they enrolled etc. By getting a small percentage of many people, your income can grow to a very large number.

For example: let's say your company sells Widgets, and the average person in the company buys $100 in Widgets each month. (This might be for resale or for personal use, depending on the company.) Now let's say you get 5% override bonuses, and your plan pays 7 "levels" deep. Watch what happens if you find 5 hard workers, who each find 5 hard workers, who each find 5 more hard workers……


Level #       People $             Volume $                 Bonuses

1                   5                          500                          25
2                   25                        2,500                       125
3                  125                     12,500                       625
4                  625                     62,500                       3,125
5                  3,125                  312,500                     15,625
6                  15,625                1,562,500                  78,125
7                  78,125                7,812,500                  390,625

So, if each person found 5 people, and each bought $100 each month, you would earn almost $500,000 per month! This is hypothetical and unrealistic but proves what could happen and what has happened in the past with a few MLM dealers.

But wait. It's not that simple. It takes a lot of time and work to build up a group (called a "downline") in any MLM. What's more, even if you're a real hard-working go-getter, you can't do all of it.

You can't enroll the 97,655 people in this group by yourself. Each person has to find 5 of his own and the sad truth is, most people are not that ambitious. It's hard to find people that really want to work even if they are in bad need of extra income.

So it's almost unheard-of for someone to actually build an idealized group like this. Some "legs" in the downline will build faster than others, and some will grow slower. If you don't work hard yourself, you might never start any legs that go anywhere.

But that's the concept. A large number of people doing a little bit each, and you getting a small reward on each one. If you have the initiative and work ethic to build that group, you can make a very nice income in MLM -- maybe even get rich.

But MLM is not a get-rich-quick deal. It does take a lot of work, and most people won't put in the work it takes. The large majority of people will never get rich and in the past many never made any money due the product, program or company. But the beauty of it is, as long as you pick a good company with a good and unique product, the size of your success is up to you.

Q: Is MLM a scam? Is it legal? Is it moral, ethical, etc?

The short answer is: maybe.

Multilevel marketing is misunderstood 90% of the time. Ignorance about MLM is the cause of undue arguments, remarks about pyramids, and general disagreements in general about MLM. Many people contend MLM is immoral or unethical. Many Attorney Generals (who ought to know what they're talking about) say a properly managed and operated MLM is perfectly legitimate and ethical. Who's right?

The truth is, MLM is not inherently good or evil any more than capitalism is good or evil. Both can be done ethically, and both can be done unethically. It depends on how a particular company is designed and managed.

Since the MLM industry is very young (less than 50 years old), the law is still in flux. There are admittedly many MLM companies that are nothing more than scams, get-rich deals for the owners and their cronies, glorified chain letters, ponzy schemes etc. Some of them even manage to skirt around the legal issues and avoid prosecution.

There are other companies that have legitimate products, and may have been in business for many years, but which are run in such a way that many people get burned -- old ladies investing their retirement funds to buy a garage full of products, and so on.

Most people would agree these companies, or at least the dealers that condone and prepetuate questionable practices, are not very ethical.

On the other hand, there are many companies that are run legitimately, legally, and ethically. They produce good products that are valued by customers, and give many people the opportunity to purchase great products and improve their financial situation.

In a properly designed MLM, a new person has the same opportunity to build a downline group on the same basis as the person who got in the program months earlier. He invested maybe a hundred bucks and a few hours. It's only fair that everyone starts out in the same place -- AT THE BOTTOM -- and every person has the same chance to build a downline of their own.

The anti-MLM argument often runs calculations of exponential growth, and demonstrates that the entire population of the planet will be enrolled within a short period. This is an intellectual exercise rather like the example of "one pregnant mosquito could carpet the earth in mosquitoes by the end of the summer." In other words, in actual reality, it doesn't happen that way. The growth rate is normally much slower than people realize, especially once a company gets larger. No company in the history of MLM has ever grown fast enough to exhaust its potential marketplace. More people turn 18 every year in the United States than are enrolled in all MLM companies combined. So far, at least, the growth of MLMs hasn't kept up with the growth of population.

So, in the opinion of those people who know, MLM can be done legally, morally, and ethically. It can also be done unethically and illegally. Choose your company carefully.

Q: But isn't it wrong to keep bringing in new participants, rather than concentrating on selling a product like "regular" businesses?

Many anti-MLM folks think that the only purpose of an MLM is to enroll new people, instead of selling a product. What they don't understand is that enrolling new people is how you sell product in MLM. Besides, all businesses whether retail or MLM continually lose customers so sponsoring must be continuous.

If you focus only on selling, it isn't MLM; it's plain old sales. There is nothing wrong with that; it's just not MLM.

MLM works with a different process than typical sales. Rather than finding a few people who sell a ton, you find a bunch of people who sell a little. Since each person sells so little, self-consumption can account for a significant portion of those sales. Enrolling new people, and building downlines, is how you find the people who consume and bring others who consume! That’s multilevel marketing and consumer-to-consumer sales.

In any legitimately run MLM, all people, from top to bottom, contribute to the sales effort, that's how bonuses get paid. It's just done in a different manner than in traditional sales or retail.

MLM works differently than traditional methods, but just because it's different doesn't make it bad. It's just different. Just like franchising was different from traditional retailing and was considered to be a scam for many years. But when properly implemented, franchising is not a scam; it's a very effective way to do business. Similarly, when properly implemented, MLM is different from traditional retailing and franchising, and it can be a very effective way to do business as demonstrated by many major companies who now have multilevel divisions.

Q: What's the difference between MLM and Network Marketing?

Most people would say the terms are synonymous. MLM is an older term, and has taken on negative connotations in some people's minds. Some who are trying to avoid this stigma prefers network Marketing. Regardless how you dress up network marketing it’s still multilevel.

Some companies, such as Amway, consider "Network Marketing" to be a specific form of MLM: namely, combining a "network" of outside suppliers (AT&T, Coke, Reebok, etc.) with a network of "marketing" folks (the dealers).

Q: How can you succeed in MLM?

The short answer is, work diligently, work consistently, and don't give up.

All companies and products are different, and what works in one company might not work in another. You should learn from your upline. Ask them what works and what you should do to succeed.

Draw on them for help. They've found out from experience what works and what don’t, and they're interested in your success. The fundamental ideas, though, are the same in any company.

Do what a dealer/distributor/associate/whatever is supposed to do in your company. That is, retail products, sponsor, consume products, whatever -- and find others to do the same. Convince them to do what you do.

Duplication is the key to success in MLM. You're not supposed to go out and enroll the world, or sell something to everybody on the planet. You're supposed to find a few people who want to consume or use the product, build a business, and help them get started. More importantly, teach them to do what a dealer does, and go out and find a few people to work with and teach those new people. Until you have "convinced your people to convince their people to convince others," you have not really duplicated yourself.

Keep plugging away. Unless you're incredibly good at this, it will take time to build a group. It takes time to find good people. Sometimes it can be very discouraging. Sometimes you may be tempted to give up and if others are succeeding in your company and you are not, you need to take a look at what you’re doing that isn't working. It may be that you wouldn't do any better in another company, even if the grass looks greener, because you're doing the wrong things.

It is a sad fact that a very small percentage of people who enroll in any particular MLM will succeed big. This is not, however, a fatal flaw of MLM; it's a reflection of real life. 90% of small businesses fail within 1-5 years and the owners lose a whole lot more than the few hundred dollars an MLM person typically invests. 98% of corporate employees will never achieve executive levels. 95% of 65-year-old retirees in the US (according to insurance & Social Security statistics) are dead or broke. The true fact is, very few people succeed big in any endeavor. Most people simply will not do what it takes to succeed. MLM is no different in this regard.

However, many people get into an MLM with the idea that it's some kind of "easy road to riches". It's not. It takes work. It takes time and dedication. But most people don't see that, either because their sponsor misled them with rosy predictions of instant wealth, or because they chose to hear the easy story. People like this enroll and don't do anything, or give it a try but give up after a few months. This is where the vast majority of "MLM failures" comes from.

The biggest problem with MLM is that it's too easy to get into it (usually no more than a few hundred dollars), so it's too easy to get out. With only a few hundred bucks committed, it's easy for someone to say, "Ah, heck, I talked to 4 people and none of them were interested. This doesn't work! Guess I wasted $200."

You should approach your business as if it was a real business, one that you had invested your life savings into. If you had sunk $200,000 into your MLM business, would you let 4 "no"s stop you? No you would not! You'd get back out there and keep working until you made it work, because you had too much money in it to give up! Well, guess what? That's what makes MLM work too -- that dedication to keep working until you make it work.

If you work consistently, and effectively, and build your downline fast and solid your income will build more quickly than you had anticipated. If you've taught your people the correct ideas of "work consistently, work effectively, and teach your people how to duplicate your efforts", you should see a consistent rate of growth from the very beginning.

Q: How can YOU identify a good MLM?

Things you should look for include: Good products. Are they something that lots of people will buy? Do they fill a real need? Are they competitively priced, and will their reorder rate be high? High reorder rates make multilevel pay big dividends. Low reorder rates (typical is about 7%) is what has caused many multilevel companies to go out of business in the past. Look for a strong and stable company. You don't want them to go belly-up after you've worked to build a downline. How long have they been in business? What is the track record of the management, especially the principals? Have they been successful in the past? Have they had any legal problems in business and especially MLM in the past? Are they seasoned business people? What is their financial strength? Are they honorable people? Have they ever misled people with unsubstantiated credential claims? All of these questions are very important. If you can’t be satisfied with, even one of the answers, it would be advisable for you to look for another company.

Things you should avoid at all costs include Inventory loading. If your sponsor tries to pressure you into buying hundreds of dollars of inventory (or any inventory, in our opinion), you should check to make sure your wallet is still in your pocket and run for the door.

To really be successful, the biggest determining factor, though, is you. You are the one who's going to work or not work. You are the one who needs to stay motivated, and keep plugging along when things get tough. If you are not excited about the company, the products, and/or the opportunity, you probably won't stick it out long enough to succeed. But if you're pumped up about the product and it’s potential (and not just the initial "I'm going to get rich" excitement), you're much more likely to keep at it until you succeed.

Q: What are the popular compensation plans? (Breakaway, matrix, unilevel)

Product retailing is a major source of income in most plans, especially for someone who has not yet built a large downline. But downline bonuses are where the big long-term money comes from. There are several basic designs that are used in most MLM bonus plans.

The most common, having been around the longest, is called a "breakaway" or "stair step breakaway" plan. In this sort of plan, there are sometimes differing wholesale prices, or "discount" rates, available to someone depending on their position in the plan. As you progress to the higher positions, you will get a larger discount.

The distinguishing characteristic of this plan is the "breakaway", a position where you "break away" from your upline. After this point, the product volume generated by you and your downline no longer counts toward your upline's "group volume." Now that you have "broken away," you start tracking your own group volume.

There is usually some provision for getting paid bonuses on the volume of "breakaway" groups. You might get paid 5% on first-level breakaways (groups directly under you), 4% on second-level groups (breakaway groups under your first-level groups), and so on. There is normally a minimum "group volume" requirement for you to qualify for these "breakaway" or "generation" bonuses. The number of generations you are paid on and the percentages you get are dependent on the company and the position you have reached.

Breakaways are often considered the best plans for serious hard-core workers but aren’t beneficial for the average multi-leveler because he can never achieve the breakaway status.. They are harder than other plans, but also have the greatest potential rewards for a very small percentage of dealers in the plan. Most MLM fortunes have been made in breakaway plans. Unfortunately, many of the people who made these fortunes are no longer with their companies because the company is no longer in business.

That does not mean that breakaways are necessarily the best plans for your average Joe -- because your average Joe is not a "serious hard-core worker!!" Many part-timer MLMers find breakaways to be too difficult for them.

The "matrix" is a newer structure that came about since the advent of cheap and plentiful computers. A matrix plan has a fixed "shape" that determines the size of a downline you can be paid on. For example, if your company uses a 5x7 matrix, you can have no more than 5 people on your "frontline", and can be paid no more than 7 levels (people, not breakaway generations) deep. If you already have 5 people on your frontline, any future people you enroll will have to be "placed" somewhere below those 5 frontline people. This is called "spillover."

At first glance you might think this means you can only have 5 x 7 or 35 people in your downline, but that's not true. Each of the 5 people in your frontline can have 5 people on their frontline, and so on. So a 5 x 7 matrix can actually hold as many as 5+5 x 2+5 x 3+5 x 4... or almost 100,000 people. In theory, and in reality it is very rare for a 5 x 7 matrix to be more than 2 or 3% full. The restricted width quickly forces the growth in active legs down and out of your matrix.

"Spillover" is either a curse or a blessing, depending on how you look at it. Matrix proponents say it's a great way to force people to help their downlines, since they'll have to place people below their downline distributors. Spillover also tends to keep people active, because they don't want to lose out on the "free" downline spilling over from their upline. Matrix detractors argue that spillover is a form of "MLM welfare" that rewards weak and non-performing distributors. They say, if they're working, they already have people below them, so you're more likely to place people in the "holes" under non-workers.

Matrix plans also punish top performers, since they have to place new recruits farther and farther down in their matrix. After a while they get so little benefit from those new recruits that they lose much of their incentive to keep producing.

UNILEVEL PLANS HAVE BECOME VERY POPULAR

Recently the "unilevel" plans like the Sizzling Minerals plan have become very popular. These plans are similar to a matrix with no width restriction. So, for example, you might get paid 7 levels down, like in a matrix, but you can have as many people on your frontline as you want. This has the great advantage of being very simple to explain and to understand, and it doesn't have the growth restrictions that limit matrix plans. It loses the matrix "spillover" effect, since no one is forced to place new recruits below their frontline.

Some people believe unilevel plans are too limited, because of their limited depth. In reality, it's quite possible to build substantial depth and a very substantial income in a unilevel -- more than 99.9% of MLMers have ever seen. Many people are earning very serious money in unilevels, as in every other kind of plan.

Due to the inherent depth limitation of unilevels (and matrix plans), some companies add on an additional bonus called the "infinity" bonus which is normally paid only after a dealer has at least eight or ten levels below him and if the entire leg reaches a substantial combined purchase amount that particular month. This is usually unattainable by 99% of the dealers in the program. The Sizzling Minerals plan pays a huge unilevel bonus on the front end as soon as a dealer has sponsored five front line dealers. This type of front-end bonus is the first of it’s kind in the industry and it will surely be turning a lot of heads in the future. Due this front end bonus the company that sells Sizzling minerals believes they will break all records for the recruitment of first level dealers. Regardless what you do, make sure you understand at least the basics of the MLM plan you may be considering. After all, this is where your money will be coming from. Make sure you understand and like what you're getting before you take the plunge.

Good Luck and Happy Selling !!!!


Courtesy of US Naturals http://www.usnaturals.net/company/14/templates/1/(r1gh4t2f55wxtk55qtcakr55)/mlm1.aspx

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