For some they understand what MLM is, others don’t know, and worse yet there is a large group of individuals who think they know what MLM is, but do not have a clue. Due to this division of the population, the question of what is MLM is usually answered incorrectly. The other factor to further confuse the issue of what is MLM is the bias that comes from the individual who is trying to answer the question. That is the purpose of this page, is that it is to answer the question of what is MLM in a simple to understand and in an unbiased manner.
MLM, Multi-Level Marketing is also known as Network Marketing, is a well-established business model. Used most widely in the Direct Sales industry, the MLM business model has been in existence for more than 60 years. In that time it has generated more than USD 110 billion in revenues and is used in more than 172 markets around the world.
What distinguishes the MLM business model from a traditional business is how products are sold. In MLM the bulk of the products are sold through what is called relationship referrals, or word of mouth. People recommending products that they have used and are satisfied with, thus their friends too want the same results and will purchase products. The number of sales for the MLM company increases as the network of independent distributors/associates working with the MLM company grows.
The network of independent distributors/associates grows as they are paid to spread the word about their respective products. Instead of having multi-million dollar advertising campaigns, the parent Multi-level company will pay their independent distributors/associates based on their compensation plan.
While the MLM business model works well for companies looking to sell a product, it works even better for the average individual who is an independent distributor/associate as they can leverage the MLM company’s compensation plan and earn an income that they would most likely not be able to earn elsewhere.
In MLM there are two important terms that everyone should utilize and maximize and that is leverage and duplication. The independent distributor/associate can leverage the efforts of others to increase their incomes, as well as duplicate the success before them. A one develops into a leader and leads their groups, they will then teach and mentor their groups to duplicate what they have accomplished.
In this manner, everyone wins! The distributors earn more money every week, more products are being sold, again helping the independent distributor/associate to make more money, and the parent MLM company is making more money with the additional sales.
Why Companies Choose the MLM Business Model
The bottom line for any company, regardless of industry is just that, their bottom line. The company wants to increase revenue, increase its customer base and if its operations are in order and their products are priced correctly, they should be able to increase their profits. That is the reason any company is in business, and that is to turn a profit and make money.
Where the difference between a traditional business and a Multi-level business is how the company expands its customer base, revenue and profits. The traditional company will have an advertising budget which they will use to get the product and/or services in front of the public so that they are aware of the product and/or service and the need that it can fulfill. The company then has to have the proper channels for their products and/or services to be sold, and for this, they turn to retail outlets. The retail outlets are what a customer goes to, whether in person or online, and purchases the products and/or services that they saw advertised.
In following this traditional business model, money is spent on manufacturing the product, advertising, distribution to the retail outlets and the retail outlet’s mark-up. In an MLM business model, the money that would have been spent on advertising, shipping and retail outlet mark-up is saved. Instead, it is paid out in commissions to the independent distributor/associate.
In today’s environment with multiple sources of media everywhere we look, it is becoming more and more difficult to engage people and share a new product and/or service. MLM allows companies to get through multiple levels of distractions and work with an individual’s referrals to sell their product. No longer does the biggest advertising budget win, as it can be very difficult, if not impossible for new start-ups to compete with their larger, corporate competition.
Multi-level business models levels playing field and give start-up companies the chance to build their customer base. Also as the MLM model is more directly in contact with its customers, better customer service can be achieved and thus increased customer loyalties. Everything from developing new products/services as requested by the customers, to saving the customers money as the “middle man”; is no longer present in the business model. It is a win-win situation for the company and its customers!