What is MLM or Network Marketing?

What is MLM or Network Marketing?

Although I might seem to really hate MLM (and you’ll know me as the person who banned all MLMers and network marketers from My Speed Business Network) I want to assure you that I have enormous goodwill and respect for MLM done properly.

After all, network marketing provides a business model that has the potential for incredibly wide-ranging benefits: financial, economic, educational, social, political and philosophical. It’s a brilliant model. The problem is that it has been done so badly that its reputation is foul, to say the least. This series of articles is an attempt to redress that, to point out the errors, and describe proven business strategies that will help MLM to fulfil its promise, to many more people.

MLM or network marketing is the name given to any business model whereby the growth of the business depends upon recruitment of more business owners, and payment is via a tiered system of commissions. For instance I may join the business and my commissions on product sales may be 20%. If I persuade you to join (ie, become a business in my “downline”) then you will also receive commissions on your sales of 20%. However I will receive commissions on your sales of perhaps 10%. And if you sign up people under you (which I’ll be encouraging you to do of course!) then you and I will both enjoy commissions on their sales. And so on.

There are lots of different configurations, with some companies having only 2 tiers available for instance. Commission rates vary, some companies pay a bonus for recruiting, and some companies charge a joining fee or require you to buy product, marketing materials, or even “training material”.

Network marketing, or MLM is different from “pyramid” schemes. In a pyramid scheme you must pay to join, and you get money back only when you convince someone else to join. Every pyramid scheme collapses and some simple math will show you why.

Let’s say there is a pyramid scheme where everyone who joins is limited to joining up just 5 other people, on the basis that they’ll quintuple their money. So it kicks off with the founder joining up 5 people, who each must now go and join up 5 more people. So far so easy. By the third layer you only need 126 people and the top guys have got their money back and are rubbing their hands. However by the sixth layer that number jumps to 15,626, and by the ninth layer you need 1.9 million people. Depending on when the scheme collapses (and it always does) 1.5 million people will lose every cent. No wonder pyramid schemes are illegal.

MLM or internet marketing, by definition are not pyramid schemes, but if the emphasis is on recruiting instead of product sales, then it is behaving like a pyramid scheme and will collapse. These companies tend to produce more consultants than the market for the product can bear. No smart business person would go into a market that was already saturated, so make sure you check your market before agreeing to join any downline. Run from any company that stresses recruitment over product sales.

A MLM company that is experiencing steady growth (absolutely NOT rapid, unless you are in at the top), that can demonstrate market demand for its product, and which focuses on product rather than recruitment, is the smart choice.

Once the market has stabilised, recruitment should be at a rate which replaces attrition, so that the entire organisation is sustainable.

MLMProfessionals.biz does not have an association with any MLM or network marketing company, and does not receive payment for product sales or recruitment.

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