What Is MLM? (With Benefits And Tips For MLM Success)

Updated 30 September 2022

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Multi-level marketing (MLM) involves sales representatives selling products directly and frequently to consumers. It is a form of direct marketing or network marketing where current members of an MLM company sell and promote the products to prospective customers. MLM mostly appeals to freshers and new recruits since it promises independence and wealth generation. In this article, we find the answer to 'what is MLM?,' understand how the MLM model works and look at some of its benefits.

What is MLM?

Understanding what MLM is can help you see if the business model interests you. Multi-level marketing (MLM) is a method of marketing that relies on independent sales representatives to sell products directly to consumers. Consumer goods mostly involve cosmetics or nutritional supplements. There may be only a few levels between the top executives and the newest members of the MLM company. In MLM business models, there could be roles such as distributor, sales representative, sponsor, recruiter and CEO.

Distributors make money in two ways:

Through direct sales to other consumers: For instance, Rahul is an ABC Nutritional Supplements distributor. The company offers him discounts on supplements and he resells them for full price to friends, family and other customers in his network.
Getting new distributors to get recruited into their downline: Distributors often receive a portion of the sales made by new recruits. For instance, Rahul recruits Ayush to work with ABC Nutritional Supplements, and Rahul receives a portion of Ayush's earnings.

The working of the MLM model

The multi-level marketing model differs from traditional direct sales in that it relies on independent distributors who work full-time or part-time rather than working for a company. Notably, individual sales representatives or satisfied customers often act as their own small business owners. They sell products and services directly to consumers, usually without a storefront. A distributor earns income from two sources. The first is by selling their products directly to customers, while the second is the recruitment of new distributors.

Each person above the bottom sales representative receives a portion of the income when they make a sale. Unlike traditional sales organisations, multilevel marketing representatives earn commissions at all levels. It is the foundation of a multi-level marketing business that people are more inclined to trust friends and acquaintances who fulfil the role of representatives than strangers selling the products. Customers whose representatives use their communities as their customer base may also find that their friends and family are enthusiastic about supporting their business ventures.

Terms used in MLM

Here is a list of some terms used in multi-level marketing:

Active

If a distributor generates a certain amount of sales or recruits a certain number of new distributors, they can maintain the title of 'Active.' Customer purchases and distributor purchases are equally acceptable. A compensation plan qualifier or compression metric is typically active.

Affiliate

An affiliate is someone who has obtained marketing materials and signed an affiliate agreement. An affiliate program is a marketing strategy in which third parties or affiliates boost product sales by utilising their own marketing techniques in exchange for a commission. An affiliate program can provide direct sales with a substantial boost.

Bonus

Business owners may give distributors an additional benefit in addition to their commission based on their performance. Such benefits could take the form of money or other rewards. A sales representative in a multi-level marketing company receives a bonus for bringing in new clients or hiring new recruits. There are incentives available at every level of MLM.

Level commission

Distributors earn level commissions based on the sales of their recruits in their downline. A distributor's payline is made up of all the people from whom he or she earns a commission. The commission percentages for each level is the same for each level in its most basic form.

Compensation plan

A compensation plan is a method of paying distributor commissions based on personal sales along with those in the downline. Depending on the compensation plan chosen, distributors receive commissions based on their own sales and the sales of those under them. Some of the most important factors to consider while choosing a compensation plan include product or service, training and marketing, existing laws in the market and product cost to selling price ratio.

Downline

Downline is the network of members a distributor recruits. It can also include those networks that are associated with a distributor's recruits. A member who joins the company or comes under a distributor can also be eligible for commissions paid to their upline.

Frontline

Most personally enrolled downlines make up the frontline. Frontline members earn a distributor's commission if they meet the company's compensation plan. In MLM companies, distributors receive rewards for recruiting new members.

Hybrid

A compensation plan that combines the features of two or more plans. Hybrid plans offer high-income opportunities to members since they combine the benefits of several plans. In a hybrid plan, the MLM company often makes good profits.

Upline

Uplines are the people or distributors above someone in an MLM business. The upline of an MLM distributor also receives compensation for their sales. Uplines find new prospects for their downlines and help them grow in the process.

MLM vs. pyramid schemes

Even though a pyramid scheme resembles multilevel marketing closely, MLM is a legitimate form of marketing, whereas pyramid schemes are not. MLMs have the primary objective of selling goods or services. Pyramid schemes, on the other hand, offer no real returns or products. Here are some of the differences between pyramid schemes and MLM:

Emphasis on recruitment: By putting an emphasis on recruitment instead of sales, pyramid schemes encourage their representatives to recruit additional representatives instead of selling products.
Minimum regular investment: Pyramid schemes usually demand regular monthly or quarterly investments of a certain amount regardless of how many products they already have.
Income from recruitment: The company makes the majority of its money from new recruits purchasing rather than sales of the products to end-users.

Benefits of MLM

MLM plans are low-risk ways to start a business and boost sales. Here are some of the benefits of MLM:

Possibility of good income: To sell their products directly to their end-users, MLM companies hire a network of independent distributors. One good way to make a good profit is to hire more distributors who also sell the product, i.e., the downline. Distributors in someone's downline can also earn commissions on sales.
Lower sales expenses: By having independent distributors, the company does not pay fixed salaries to them. Instead, companies pay commissions when they make sales. This helps save up on sales expenses.
Less inventory: Modern MLM companies take advantage of the tools and technology they have at their disposal. They make use of Internet telephony, dropshipping ability, access to high Internet, conference lines and consumer leads. A business that does not take care of inventory products becomes more responsive to market conditions.

Tips for MLM success

Here are some of the tips to achieve success in MLM:

Identify the target audience

Marketing professionals make the mistake of assuming that everyone is a potential customer or recruit. This is also prevalent among distributors. Identifying the target audience and targeting marketing efforts at them can help have greater success and efficiency as a business.

Understand the basics of marketing

As part of direct sales marketing, it is important to consider the target market, the needs and how to contribute. Marketing professionals can use various marketing tools to increase product sales such as a website, email and social media. This can help make the MLM plan more autonomous and flexible.

Share the business plan with your network

MLM sponsors can earn an income from legitimate MLM by selling products or services. Moreover, customers who are happy with the product or service are likely to bring in new customers. The key to generating new customers and recruits for an MLM business is getting the word out through sharing a sample of a product or creating a webpage.

Research the company

It is important to determine the legitimacy of the MLM company before working. Distributors can determine whether an MLM is legitimate and a potential income source for them by researching the company's practices, business plan, compensation structure and professional affiliations. Buy leads from a company with a reputation for delivering high-quality leads where they advertise and pre-qualify the leads.