The Savvy Entrepreneur

Last week a client asked me what multi level marketing was and I thought “That’s odd. I thought EVERYONE knew what an MLM is.” Lesson: Never assume!

So, here is my attempt at defining multi level marketing (MLM) in plain English.

MLM goes by many other names, but the most popular are “network marketing” and “direct sales.”

MLM is a technique some companies employ to market, sell and distribute their products (or services). They do so through independent sales people, often referred to as (independent) consultants or representatives. “Independent” means they are neither employed nor subcontracted. They work on commission and are considered to have their own business.

Independent consultants purchase their marketing and promotional materials from the company, and there are usually strict “rules” as to how they can use branded material. Some companies even go so far as “restricting” certain marketing strategies for fear of harming their brand or because there is no way for them to verify it is being done in a suitable manner.

For example, one company I know of doesn’t allow their representatives to post branded marketing material –anything with the company name or logo– on bulletin boards and classified ads, nor do they want their reps to resort to “low end” or “cheap” strategies, like placing brochures on car windshields. Of course there’s no way for the company to regulate this or check up on, but they constantly emphasize the importance of branding the company as a high end, classy organization, producing superior, high quality products. They don’t want their image to be tarnished with tasteless –and let’s be honest, ineffective– marketing strategies.

In most cases, independent reps must also become clients themselves by purchasing a minimum amount of product for their own personal use or to distribute (or both).

An independent consultant’s work can be split in 2 major categories:

1. Sales. Bob tells Mary how TheBestProductEver company has come up with a revolutionary facial cream that instantly makes wrinkles and age spots disappear. Bob has been using it for 5 weeks now, and is amazed by the results. He then shows Mary before and after pictures of satisfied customers. Mary is impressed and decides to buy 3 bottles. Bob places her order and hand delivers it to Mary a week or two later. Bob earns commission for his sale to Mary.
2. Recruiting. This is where the “multi level” part comes in. Bob decides to expand his business with TheBestProductEver company, so he shares the business opportunity with his friend, Mitch. Mitch likes the prospect of working his own hours and being involved in a ground floor opportunity, so he signs up as an independent rep with TheBestProductEver company. Bob now has a recruit (Mitch) “under” him (Bob’s downline) and he earns a percentage of what Mitch sells. Bob trains Mitch to do the same (duplicating) –sell, recruit, train. Mitch is successful, so he now has people in his downline which adds a second level to Bob’s organization. On and on it goes. How wide and how deep Bob’s network goes depends on the commission structure of TheBestProductEver company.

Did you get all that?

The questions commonly surrounding multi level marketing are:

• Aren’t MLM’s considered pyramid schemes? Are they legal?
• Do people actually make money joining an MLM?
• Is it really as easy as they claim it is?
• How do I know if an MLM company is legit?

I will attempt to answer some, if not all, of these questions in the next few weeks.

Everyone has an opinion when it comes to this subject, so good or bad, what do you think about MLMs? What burning questions do you have about MLM’s?