Multi-Level Marketing – What is it and why is it so controversial?

by Maximilian Claessens
79 views 10 minutes read
Multi-Level Marketing – What is it and why is it so controversial?

Multi-Level Marketing (MLM) is a marketing strategy that uses a non-salaried workforce to sell products and services through a pyramid-shaped commission system. MLM is also referred to as network marketing or referral marketing. Read on to learn more about Multi-Level Marketing. We will discuss what this strategy is, how it works, and why it is so controversial. We will also look at potential advantages and whether MLM has any merit in today’s business world.

What is Multi-Level Marketing?

Multi-Level Marketing is a business strategy that is widely used by companies that rely on product sales to generate revenue. Unlike the traditional sales channels, where customers are acquired through a marketing funnel, multi-level marketing programs rely on networks to generate revenue and recruit new participants. As a result, they’re frequently referred to as network marketing or a marketing network.

Individuals in Multi-Level Marketing or network marketing sell products to the general public, often through word of mouth and direct sales. The main idea behind the MLM strategy is to promote the products to as many distributors as possible in order to exponentially increase your sales force. Thus, the compensation plan in multi-level marketing is structured in such a way that commission is paid to individuals at multiple levels when a single sale is made and commission is based on the total volume of sales generated.

How does Multi-Level Marketing work?

This is how Multi-Level Marketing works: Individuals are hired as contractors, independent business owners, distributors, or direct salespeople. These individuals are then assigned the task of selling the company’s products and/or services to others, including family and friends. Sales can take place either in person or online. They are paid a commission on each sale they make.

The participants are also encouraged to bring in or recruit new participants for the program. While they are not under any obligation to do so, signing up new contractors provides a financial incentive for the participants, who receive a percentage of their recruits’ sales, as well as their recruits, and the recruits of these recruits, and so further… As you can see, the goal is usually to build a so-called marketing network to sell products.

Depending on the size of the company, there may be hundreds or even thousands of participants in the marketing network. As long as the chain is intact, members of all levels will receive some form of commission. People can make more money if there are more layers. You can consider it as a pyramid. The person or people at the top earn the most commission, while those at the bottom earn the least. However, only a small percentage of those who work earn a living – often, participating in MLM programs is a side-job for participants.

Why is Multi-Level Marketing so controversial? – MLM vs. Pyramid Schemes

Multi-Level Marketing is often seen as a very controversial strategy. However, actually, MLM is in itself a legitimate business strategy. The reason it is often criticized is its close relationship with a less legitimate strategy: Pyramid Schemes.

Pyramid schemes are deceptive. They can appear to be legitimate MLM business opportunities and frequently sell actual products, possibly even ones you’ve heard of before. However, becoming a distributor for pyramid schemes can cost you and your recruits, who often consist of family and friends, a lot of time and money that you will not be able to recoup.

The promoters of a pyramid scheme may try to recruit you by making promises about how much money you’ll make. They may claim that by selling the company’s products, you can be able to change your life, leave your job, and even become extremely wealthy. That is, unfortunately, usually a lie. Your income would be determined primarily by the number of people you recruit, rather than the amount of products you sell. Pyramid schemes are designed to encourage everyone to keep recruiting and bringing in new distributors, and their money, in order to keep a steady stream of new distributors, and their money, flowing into the business.

A typical pyramid scheme will frequently encourage or even require you to buy a certain amount of product at regular intervals, even if you already have more inventory than you can use or sell.

You may even be required to purchase products before you can be paid or receive certain bonuses. You may also have to pay recurring fees for other items, such as training sessions or costly marketing materials. Furthermore, the company may claim that you can earn lavish rewards such as prizes, bonuses, exotic vacations, and luxury cars. However, it frequently turns out that you must meet certain product purchase thresholds, recruitment, training, or other goals to qualify for the rewards, and only a small number of distributors ever do.

Most of the distributors eventually discover that no matter how hard they work, they cannot sell enough inventory or recruit enough people to make a sound profit. They are also unable to keep up with required fees or the inventory purchases required to qualify for rewards, and they are unable to earn enough money to cover their expenses. Most people eventually run out of money, have to quit, and lose everything they invested.

How to recognize a Pyramid Scheme

The problem is that the borders between legitimate MLM and pyramid schemes are very blurry.

Here are some red flags that may help you recognize a pyramid scheme:

  • Promoters make grandiose claims about your earning potential. Stop – These assurances are usually false promises.
  • Recruiting new distributors for your sales network is emphasized as the true way to make money. Watch out – You should be able to make money simply by selling the product in a legitimate MLM program.
  • The promoters play on your emotions or use high-pressure sales tactics, such as telling you that if you do not act now, you’ll miss out on the opportunity and discouraging you from researching the company. Take the nearest exit – Any company that tries to force you to join should be avoided.
  • Distributors purchase more products than they need in order to remain active in the company or qualify for bonuses or other rewards. Keep your money if you see this happening.

Here is a number of things you can do to make sure you are dealing with a legitimate MLM business:

  • When researching a potential business opportunity, you should always gather as much information as possible about the MLM company’s products and operations. Try to obtain written copies for the company’s sales literature, business plan, and/or marketing plan (while making sure to read them).
  • Consult with others who have had some experience with the multi-level marketing company and the products to determine whether the products are actually being sold (is there sufficient demand?) and if they are of high quality.
  • Check with the Better Business Bureau to see if the company has received any complaints.
  • Pay close attention when you’re at the MLM recruitment meeting. Inflated claims about the incredible amounts of money you’ll make should raise red flags.

Does Multi-Level Marketing have any merit in today’s business world? Benefits of MLM

After having discussed that MLM can be a legitimate business strategy, and should not be mistaken with pyramid schemes, let’s now answer a simple question. Does multi-level marketing have any merit in today’s business world?

The answer to this question is, as so often, it depends. It depends on the specific application and situation. Often, the lines between legitimate MLM and pyramid schemes are more than blurry. However, if done right, multi-level marketing can provide quite a number of benefits.

Many people find Multi-level Marketing (MLM) to be an appealing business opportunity. It provides the opportunity to be a part of a system for distributing products to consumers. In contrast to a person starting a business all from scratch, an MLM participant has the support of a direct selling company that supplies the products and sometimes also offers training.

Let’s have a look at the key advantages and disadvantages of MLM programs.

Advantages of Multi-Level Marketing

Possibility of high income

When they first start participating in multi-level marketing and join the marketing network, some people believe they will become wealthy quickly. However, as with any worthwhile business venture, making these plans work requires effort. The bottom line is that the earnings are entirely dependent on each person. The workers are not bound by a rigid work schedule or a fixed salary. When necessary, they can even work longer hours and earn more money. This can be a good choice for those looking to save money or get out of debt. Instead of working two full-time jobs to make ends meet, they can work as much as they want at just one.

There is no need for basic business costs

Anyone may come out ahead if their business starts slowly. With an MLM, there is no money allocated to the rental of an office space or the hiring of additional employees. Everyone is out to make a name for themselves. While it takes a group to organize the network, these people are not all congregating in one location for work every day. Consider all of the expenses associated with running a business, such as utilities, equipment, and insurance.

Have more flexibility

Multi-Level Marketing requires a significant amount of effort. However, the people working in it have complete control over their time. Anyone can begin their workday later so that they can have breakfast with their children and drive them to school. They can also work ahead of time so that they are ready to go to the park when they get home from school. No one is required to obtain approval if they need a few days off due to illness. When it comes to these business models, flexibility grows over time. Keep in mind that they may need to work longer hours at first in order to reap the benefits later.

A low initial investment

When it comes to starting your own business, you may, like most people tend to procrastinate a lot. The amount of money required for a startup is frequently overwhelming. It is all too easy to go into debt to start a business that may fail. With Multi-Level Marketing, the risk of failure is much lower. It gives the time to learn about the product or service before beginning so you know exactly what to do. You can usually get started for a couple of hundred dollars with minimal maintenance costs. This can be superior to investing thousands of dollars all at once.

Disadvantages and Pitfalls of Multi-Level Marketing

Not everyone is ready for network marketing

Always bear in mind that significant amounts of time and money need to be devoted and invested into Multi-Level Marketing. That is where Multi-Level Marketing companies may fall short. Most distributors work part-time, making it difficult for them to meet with consumers and other marketing experts when necessary.

If a person wants to be a representative in the marketing network, they must first pay the cost to become a member and be eligible for the perks. This produces areas of competition, which fill the marketplaces with the represented goods or services and limit the profitability.

Face-to-face interaction may be complicated

MLM firms frequently use catchphrases such as “work from home” or “this work is for everyone, regardless of age.”

These phrases are frequently used to get new members to join and invest in the company. Individuals with no public speaking abilities however may find it tough to socialize with clients because not everyone is equipped to deal with new people and pitch the products successfully.

It takes a lot of time to develop

The income does not appear suddenly, it must be worked for. It is totally up to the abilities and persuasiveness of each seller to make the most of it. An MLM network may appear to be a simple method to make money, but as an independent agent, anyone can really start their own business without even knowing it.

Building a network marketing footprint, like any other business, requires a lot of time. Even if the sellers obtain advertising materials and access to experienced staff, or even a personalized dashboard, rushing into it will most likely not be successful. Even the best products in the world will not sell if people are unaware of them. Achieving that takes time.

Customers may be difficult to persuade

It is tough to convey to clients how a plan would benefit them. “I don’t have time for it,” “No,” and “I already have a job” are some of the most typical responses you will receive from folks contacted at first. The average person who begins may only have a conversion rate of 1%. Out of every 100 persons approached for a potential sale, 99 will be uninterested. Low conversion rates can cause a wonderful network marketing opportunity to disappear for people who become disheartened by such criticism.

Closing words

A network marketing firm is likely to increase people’s income if they devote their complete attention to a program that requires both money and time. While some get wealthy through MLM marketing, others fail. Multi-level marketing is controversial for a reason, and the lines to illegal pyramid schemes are very thin. If you consider setting up or joining an MLM strategy, keep the potential disadvantages and pitfalls in mind.

You may also like