Marketing Lingo Defined: Multi Level Marketing
May 13th, 2008 by Cristina Favreau
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:
- 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.
- 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?
Thank you for clarifying the term MLM. Your post conjured up the image of the “door to door salesman” of the old days. If a person participates in a MLM program, are they a franchise owner of TheBestProductEver company?
Cristina,
I’m so glad you will be doing a series on multilevel marketing! This is a great topic because there’s a lot of misinformation floating around out there. In fact, the Direct Selling Association recently launched a new Web site, http://www.directselling411.com, designed to provide balanced information about direct selling and address frequently asked questions on the topic.
I’m looking forward to your future posts, but wanted to expand on a couple things you said.
First, many people assume (for obvious reasons!) that multilevel marketing is a marketing plan or strategy. In fact, MLM refers only to the compensation plan. As you described, a multi-level plan provides compensation on one’s own sales as well as the sales of those they have recruited. The sales strategy used by companies that have a multi-level compensation plan is usually either party plan (group of people at the home of a hostess) or person-to-person (usually one seller and 1-2 potential customers.)
You also noted that most direct sellers must become clients themselves through minimum purchases. While it is true that most direct sellers also use the products and services they sell (and most were customers before signing up as a rep!), minimum purchase and inventory requirements are becoming increasingly rare. In those cases where there are such requirements, it’s good to work with a DSA member company because of the buy-back policy that’s part of the DSA Code of Ethics. It helps ensure one doesn’t risk financial loss by trying direct selling.
The questions you propose to address are all of great interest to those researching direct selling, and each is addressed in some detail on http://www.directselling411.com – which I like to summarize by saying it looks at the good, the bad and the misunderstood of direct selling. I hope this will be a helpful resource for you and your readers.
Amy Robinson
Direct Selling Association
[...] our discussion on multi level marketing (MLM), I will attempt to answer one of the most common questions that come up — Are all [...]
Thank you so much for joining the conversation, Amy. I’m sure you explain this stuff a whole lot better than I have!!
Lara, a franchise is a whole other business model. Looks like I have another definition to work on!! Thanks for keeping me on my toes!!
Amy Robinson posted >>>>In fact, MLM refers only to the compensation plan. As you described, a multi-level plan provides compensation on one’s own sales as well as the sales of those they have recruited. <<<<
Amy, you are right on with this. All too often people misunderstand this industry (direct selling). Whether one is in a business that pays a single level compensation or multi-level, they are all a part of the Direct Selling Industry. How one sells vs how they are compensated are two separate things.
For years I have taught the only difference between a traditional business and a direct selling business is the way we are paid. All the other elements of business are present.
I believe when people begin to understand what this industry is all about and the true potential, more people can achieve greater success. One of the biggest challenges is when people misunderstand what business they are in and then deny what they are really doing, only to further tarnish their reputation.
This is why we created at our company a professional certification, so people can understand the universal fundamentals. Regardless of whether one considers themselves a mlm’r, a network marketer, a customer acquisitionist, or an affiliate, they are a direct seller and part of the Direct Selling Industry.
Success (earning the dreamed of 6-figure residuals) only comes from teh sales of products and services. We need to be proud of our industry and proud of the fact we can earn residuals through a multi-level compensation plan. To protect this industry, we must learn and master getting customers…. which is what feeds the growth of the industry.
A very great explanation of the term Multi Level Marketing. Surely it's going to benefit a lot of people who are not clear with the term and its concept and those who have heard Multi level Marketing but do not whiat it is about? A very deep insight into the term and its concept.
You're giving an interested questions. I think you can find the answers in this site http://www.ilearningglobal.tv/
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The negative info being tag along the word MLM was a product of wrong information dissemination by those who uses the name without “authority”. I mean just for their business to look like legal, they use MLM as their forefront.
I think the problem with most people entering this business is that they do not understand marketing. It doesn't matter what you are selling the message has got to be clear, what is in it for the person you are selling to or trying to get to join your organization. A good marketing plan will follow many different paths and have an over-riding strategy.
I do however, believe that using another term besides MLM is helpful because of the stigma behind it. However, if you want to really recruit, then find a way to get your prospects to fall in love with your services and method of delivery. If a prospect really likes and believes in your product, it will be very easy to get them to join your organization.
God Bless,
ELMO
http://www.downongen.com
I have been a network marketer for over 20 years. Network marketing has changed a lot over the years. The biggest change is the overhead for the distributor is next to nothing. I used to have monthly phone bills of $200 – $500 and now I have unlimited calling. My Internet marketing used to cost over $200 a month and now I have more tools and better tools for $44.95.
I make a good living, overhead is a business expense and a tax write off. I have a home office, so I get to see my kids grow up. I'm home if they are home and I go to all their games, recitals and we vacation more.
I believe in network marketing. I still run into people who don't know what network marketing is and I direct them to read John Milton Fogg's “The Greatest Networker in the World.” John shows network marketing in it's true form, people helping other people to be better leaders.
Network marketing is distributing a product. The independent direct marketers share their product with their 'network' which is just another name for 'the people you know.' Network Marketers get paid for word of mouth advertising.
Many people fail in network marketing because they believe all they have to do is sign up under a big hitter and they will magically get rich. The lottery ticket mentality that just doesn't work. If you don't work, neither does network marketing.
Think of it this way: 'net' + 'work' + 'marketing'
Cast the net, do the work & the marketing… you get paid.
The most important thing is to choose a product that you love, that you can get excited about so you can get other people excited about it… and become a leader.
If you are not growing, you are dying. Feed your mind with positive people, books and audios and your income will grow with you.
A long time ago, one of my mentors called the TV the “electronic income reducer.” That always stuck with me. So many people waste time in front of mindless television shows when they could be making a human connection. Reach out and help someone have a better life!
I love to help other people do what they love. That's what I do. I do what I love and I help other people do the same. With my business, they don't have to choose the same product I market… as a matter of fact, they can't. The people I work with have to find their passion, live their passion, and tell other people all about it.
There are so many products and companies to choose from. You can shop around until you find something that clicks with your personality.
It really is a wonderful life.
I want to clarify one thing that I wrote… The reason the people on my team “can't” market the same product I do is because my “main” product is ME. It is important to market and brand yourself as a leader. That way you are not reliant on a company or a product. You are self reliant, independent and truly free.
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