What Is MLM Marketing - Important Stuff You Must Know

There have been many questions that revolve around the MLM business. One of the most common questions is "What is the difference between MLM and pyramid scheme?"

Since you are reading this article, I assume that you are thinking whether to go into an MLM business. Therefore, I shall go through several FAQs in this article. Hopefully, by the end of this article, you will have a much clearer picture of the MLM business.

1) What is MLM?

MLM stands for multi level marketing. Some people also refer to is as network marketing. Traditionally, when companies want to sell their product, they will need to go through various stages. Cost is incurred on advertising, retailing, employees etc. In other words, a product has to pass through various stages before the product reach the hand of the customers.

In MLM business, consumers can get their product directly from the warehouse. Therefore, all the cost incurred in the various stages is eliminated. That is why MLM companies can afford to reward their distributors with more commission.

Generally, MLM companies depend on their distributors to distribute their products. Distributors not only earn a commission when they sold a product, but they can also recruit other distributors and earn a percentage of commission from their effort. This can go on for several levels depending on the compensation plan of individual companies. Over time, the commission earned by distributors can be increased to a sizable level.

2) What is the difference between MLM and pyramid scheme?

A common misconception is that MLM is just another pyramid scheme. This misconception probably arises due to some similarities in the recruitment and referral process.

However, MLM is a legitimate business. So how can you differentiate an legitimate MLM business from a pyramid scheme?

Well, in a pyramid scheme, the company does not have any real products to sell. Commission is earned solely through recruitment of new members. Therefore, the people at the top will earn the most commissions.

On the other hand, a legitimate MLM company has their own products to sell. Commission is earned through the sales of product. That is why it is possible for a downline to earn more than his sponsor.

If you find a company that does not have any real product to sell, then run away as fast as you can.

3) How do people make money from an MLM business?

When you first joined an MLM company, you earn your commission through the sales of products. Over time, you will recruit more distributors under your network. When your distributors sell more products, you will also earn commission from their effort. Let's use a diagram to illustrate.

You : 40%
1st Level: 20%
2nd Level: 10%
3rd Level: 7%
4th Level: 7%

As demonstrated in the figure above, your downline can also recruit their own downline. You will also earn a commission from their effort all the way till the 4th level. Perhaps, you are wondering why the company can afford to pay you so much commission.

Well, if you add up all the 5 levels, you will realize that it is 84%. This means the company still earn 16% of the sales. Don't underestimate the 7% on the 3th and 4th level. Overtime, they can add up to a nice 5 to 6 figure residual income.