Multi Level Marketing (MLM) is a marketing strategy, where a product or service sales is employed by some direct sales organizations. The MLM company’s revenue is obtained from unpaid labor that sells the company’s goods or services. The participants’ income is generated from a pyramid-shaped or binary compensation commission scheme. MLM encourages its participants to recruit new people into the company by promoting and selling their products to other people.
Multi level marketing is a sound business technique that is frequently employed by companies, whose revenue is (heavily) based on sales. Networks are used for sales and to find new participants in multi level marketing programs, in contrast to conventional sales channels. Hence, due to this reason they are frequently referred to as network marketing.
The compensation plan in multi-level marketing typically distributes funds to members from two possible revenue sources. The first is based on a sales commission from the actual sale of the goods or services, while the second is paid out from commissions based on wholesale goods purchased by other sellers whom the participant has persuaded to sell goods as well. Participants who have been recruited (as well as those that the recruiter hires) are referred to as downline distributors.
Based on the size of the firm and nature of business , there may be hundreds or even thousands of participants. As long as the chain continues, members at all tiers receive commissions in some capacity. People can earn more money the further layers there are. Imagine it to be a pyramid. The individual or people at the very top make the most money, while others who are seated closer to the bottom make less money in commission.
Characteristics of Multi Level Marketing
- Multi Level Marketing has low operating and overhead costs to any other business model. There are no employees to hire as everyone will work as an independent agent and payment is made only upon sales i.e. commission, this means no overhead cost.
- As the payment is based on commission on sales, there is no cap on how much money one can earn. There is unlimited income potential.
- Multi Level Marketing has less Risk and Insignificant financial commitment. There is no to less financial commitment needed from any individuals to be an agent, neither they need to pay for any inventory. Similarly, the company will have low financial commitment towards agents unless the sales are generated. There is a small risk towards the delivery of product or services.
- Multi Level Marketing has the potential to go international and has a huge scalability. Most of the famous businesses are global.
Multi Level Marketing Example
Although MLM and pyramid scams are frequently contrasted, they are distinct entities. It is legal for multi-level marketers to allow their customers to withdraw their earnings. The main disadvantages are the individuals’ limited money and the enterprises’ sluggish growth. There are some companies effectively utilizing the multi level marketing approach. There are high chances that you’ve bought some of their goods or noticed somewhere. They’re listed below as follows:
Established in 1959, the company was formed in Ads, Michigan by Jay Van Andel and Richard DeVos. The family run firm has expanded its operations to different locations, all over the world. After a thorough investigation by the Federal Trade Commission, the company has been declared free of pyramid scheming and it actually boosted their reputation in the market. This resulted in an annual $8.4 billion profit for the enterprise.
Since Avon sells cosmetics, fragrance, skincare, and personal care items, it is a well-liked brand among women. David H. McConnell, a door-to-door book salesperson who shifted to selling perfumes, founded Avon in 1886. Avon has offices in almost every country and its corporate headquarters are in London, UK. They’ve been in the business for almost 140 years. According to the Avon model, salespeople should welcome new distributors and provide them with product catalogs and brochures. The corporation even has training facilities, where it trains workers in sales.
This company offers a variety of goods, from food and drink to personal care and wellbeing. Herbalife is perhaps the most well-known company for its nutrition supplements. Herbalife was founded in 1980 by Mark R. Hughes in Los Angeles, California, and is currently based there. Herbalife has over 4.5 million members and employs close to 10,000 employees globally. The binary structure is a key component of their MLM strategy. It implies that a distributor can only have a maximum of two first-level sellers.