Multi-Level Marketing

Multi-Level Marketing (MLM) or Network Marketing

What is Multi-Level Marketing (MLM)?

Multilevel marketing (MLM) plans are a way of selling goods or services through distributors. These plans promise that if you sign up as a distributor, you will receive commissions — for both your sales of the plan’s goods or services and those of other people you recruit to join.

Multi-level marketing (MLM) is a term that describes a marketing structure used by some companies as part of their overall marketing strategy.
The structure is designed to create a marketing and sales force by compensating promoters of company products not only for sales they personally generate, but also for the sales of other promoters they introduced to the company, creating a down line of distributors and a hierarchy of multiple levels of compensation.
The products and company are usually marketed directly to consumers and potential business partners by means of relationship referrals and word of mouth marketing

Criticism of Multi- Level Marketing (MLM)
The FTC issued a decision, Case. Amway Corp. in 1979, which indicated that multi-level marketing was not in itself illegal. However, Amway was found guilty of price fixing (by requiring “independent” distributors to sell at low prices) and making exaggerated claims income.
The Federal Trade Commission believes that multi-level marketing organizations with greater incentives for recruitment as sales of products must be treated with scepticism. In April 2006, she proposed a business opportunity for the rule requires that all sellers of business opportunities, including MLMs to provide sufficient information to enable buyers to make an informed decision about their probability of earning money. FTC regulation of trade rules generally 1-1/2 to 3 years before a final settlement is established.
The criticisms were raised against MLM programs to be cult-like in nature. Many programs feature intense MLM programs motivation, which may be difficult to distinguish from the cult propaganda. Criticism of Amway as a cult have been widely seen as unfounded, although some of the “bodies of Independent Business” within Amway have
been accused of operating as cults.
Another criticism is that MLM programs are in place to thwart most distributors, as there is a continued incentive to continue to recruit distributors even though the products have reached market saturation, which has caused the average earnings per distributor continue to decline.

How does a Multi Level Marketing works?
Multilevel marketing plans, also known as "network" or "matrix" marketing, are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you will receive commissions -- for both your sales of the plan's goods or services and those of other people you recruit to join the distributors. Multilevel marketing plans usually promise to pay commissions through two or more levels of recruits, known as the distributor's "downline."
In a typical multi-level marketing or network marketing arrangement, individuals associate with a parent company as an independent contractor or franchisee and are compensated based on their sales of products or service, as well as the sales achieved by those they bring into the business. This is like many franchise companies where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager.
In a legitimate MLM company, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ("sign-up fees"). One must analyze the compensation plan to determine whether participants are paid from actual sales to customers and not from money received from new recruits. If participants are paid primarily from money received from new recruits, then the company is an illegal pyramid or Ponzi scheme.
Some less legitimate companies produce revenues primarily by attracting new participants with the hope of reward and selling them products or services of dubious value at inflated prices, as opposed to selling products or services consumers would purchase at the given price without regard to the opportunity attached. One must evaluate the products or services and determine if a significant percentage of consumers would continue to purchase them if the participants do not make money from the underlying opportunity. If the products or services have dubious value or if the participants must purchase excessive quantities without reasonable intent to use or resell said items, then the company is likely a thinly veiled illegal pyramid scheme.
Multi-level marketing has a recognized image problem due to the fact that it is often difficult to distinguish legitimate MLMs from illegal scams. MLM businesses operate legitimately in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.

Compensation Plans in MLM
Companies have devised various MLM compensation plans over the decades.
•Unilevel or Stairstep Breakaway plans are the oldest and most popular. They feature two types of distributors -- managers and non-managers -- and three types of pay:
1.Baseshop overrides are overrides of managers from their subordinate non-managers, collectively called a baseshop. This is the same as any other sales organisation.
2.Generational overrides are overrides of managers from the baseshop of managers who were previously their subordinate. Most plans compensate at least three generations of such managers.
3.Executive bonuses are commissions for managers who exceed a sales quota. For example, 2% of the total company sales revenue may go to a bonus pool that is shared monthly pro rata to managers who exceed $10,000 in that month.
•Matrix Plans limit the width of each level in a distributor's group, forcing strong distributors to pile ("spillover") their recruits over people who did not sponsor them.
•Binary plans limit the width of each level to two legs. Commissions are based on "cycles," where a distributor is paid a fixed amount whenever both legs achieve a certain number of sales units each. Commissions are paid incrementally when the sales volume in each leg matches.
•Elevator or Matrix schemes feature a game board or a list on which each distributor pays in one or more product units to participate. When a certain number of units have been paid in, the structure splits and the earlier participant receives consideration.

Ways to Avoid Being Sucked in by a Multi Level Marketing
•Never agree to go to an interview without getting a company name. Once you have the company name, you should research it on the internet. If you can’t find them, or anything about them, or if they require that you purchase costly inventory, then that raises some red flags. Check with your local Better Business Bureau and state Attorney General about any business that seems fishy.
•Who pays your salary? If it is straight commissions then be suspicious. Is the company putting their money where their mouth is? Check that there really is a product, that it is a reasonable price, and that it is something which would be possible to find a market for. If the commissions are mainly for recruiting others to do the same thing as you or for selling to others within the network, that is a pretty sure sign of a pyramid scheme.
•Do they claim to have some secret plan/connection/relationship/method which you are unable to verify? Pyramid schemes are illegal, but they aren’t the only type of business that is illegal. Make sure that you understand how a business works and how it makes money for the various people involved. This is just one step in making sure its legit.
•Business is not a matter of “faith”. Many pyramid schemes continually ask their members to “keep the faith.” They are continuously “pre-launch”, yet they never actually launch. If their best argument is that you should have faith, then don’t stick around, you can go to church instead.
•“Earn your bread by the sweat of your brow.” It might not sound as alluring as promises of making thousands of dollars with little or no work, but you’ll find that “real” business opportunities actually require you to work. In return they offer you some sort of reasonable compensation. If there is an exaggerated compensation advertised, or if it “only takes an hour a day” then it is highly unlikely that this is a legitimate business.