MLM Meaning

MLM meaning is multi-level marketing, also referred to as network marketing. MLM is any marketing strategy in which the sales force earns commissions for sales they personally make and the sales of other salespeople that they recruit. This recruited sales force is referred to as the distributor's network or downline and can provide multiple compensation levels. The number of levels of compensation and the commission percentages is determined by the MLM company that the distributors join.

Example

Let's assume that the MLM company pays commissions on four levels. The first level consists of Distributor A, who recruits Distributor B, on the second level. When Distributor B recruits another person (Distributor C), this person is on the third level of Distributor A. At the fourth and final level would be Distributor D, recruited by Distributor C.

As the illustration below shows, distributor A could be paid commissions on sales made by Distributors B, C, and D because each of these people is in Distributor A's network (or downline). Distributor A earns a percentage of these sales because they are responsible for helping all of the distributors in their network by providing tools, training, and mentorship.

Likewise, distributor B can earn commissions from distributor C and D's sales, and distributor C from D's sales. Of course, all of them can earn commissions from their own sales. 

MLM Example

"It's Not MLM."

Any company that pays beyond the second level is MLM, regardless of any claim they make. The definition of multi-level marketing does not change because the company claims they are not MLM.

Abuses in the network marketing industry by some distributors and companies have given MLM a bad reputation, which is why certain companies claim they are not multi-level. The truth is that giving people the ability to build a sales force and earn a percentage of their sales is a great way to build wealth and help other people.

There are many legitimate MLM companies with good products whose compensation plans follow the law and who greatly benefit their distributors.

MLM vs Affiliate Marketing

It's not MLM if they only pay on the first or second level, this is called affiliate marketing. Affiliate marketers are paid on one or two levels, while multi-level marketers are paid on multiple levels.

The difference between MLM and affiliate marketing includes:

  • The focus of MLM is building a downline for commissions on multiple levels, while affiliate marketers are paid on one or two levels.
  • Affiliate marketers are not responsible for helping their recruits succeed, where MLM distributors are responsible for the success of those they recruit.
  • Multi-level marketing tends to have more extensive training programs.
  • MLM distributors can often earn residual income, while affiliate programs usually do not offer ongoing commissions.
  • Network marketing is more likely to attract people interested in building a long-term income. On the other hand, affiliate marketing is more common among people who want immediate pay from part-time or flexible work.

FTC Definition

(From https://www.consumer.ftc.gov/articles/multi-level-marketing-businesses-and-pyramid-schemes)

The U.S. Federal Trade Commission states on their website, "MLM companies sell their products or services through person-to-person sales. That means you're selling directly to other people, maybe from your home, a customer's home, or online. Most MLMs say you can make money two ways:

  • by selling the MLM's products yourself to "retail" customers who are not involved in the MLM
  • by recruiting new distributors and earning commissions based on what they buy and their sales to retail customers

Your recruits, the people they recruit, and so on, become your sales network, or downline."

New recruits become part of the distributor's network. When sales are made by the new recruit, the sponsor and recruitee earn commissions. These commissions are part of the compensation plan that the MLM company establishes.

MLM companies follow what are called rules under FTC guidelines. There are 9 main points of these rules, which include:

  1. No inventory loading: This means that the company does not require distributors to buy large amounts of inventories but instead encourages them to buy as they make sales.
  2. No excessive price incentives: The MLM program should not be set up in a way that rewards distributors for just recruiting distributors.
  3. Keep compensation plans open and honest: There's no suggesting how much money each distributor makes.
  4. Require proof of sales for rewards: MLMs should make sure that distributors have actually sold products before being allowed to take advantage of any earnings from recruiting new members.
  5. Prohibit cash stockpiling: MLMs cannot require a certain amount or percentage of monthly purchases by the distributor to qualify for bonuses or commissions, as this would be similar to a pyramid scheme where those who recruit eventually benefit from those who are recruited instead of those who buy products from the company.
  6. Honor affiliate marketing guidelines: MLMs must honor affiliate marketing guidelines, meaning that MLM companies should not pay commissions to distributors who do not disclose they are being paid to sell a product.
  7. MLM companies cannot require distributors to buy products or services from the MLM company itself, or other "downline" MLMs - this would be an example of an illegal pyramid scheme where earnings are based on recruitment rather than selling.
  8. Ensure compliance with state laws: MLMs must comply with all state laws governing MLM practices and MLM contracts must include policies explaining potential legal consequences of violating these rules, including civil lawsuits for damages by injured parties against those who break them and criminal penalties for those who engage in illegal MLM practices.
  9. Maintain records of MLM earnings: MLMs must keep records that demonstrate compliance with these rules, including MLM contracts and distributor testimonials.

MLM Meaning Summary

The meaning of MLM is multi-level marketing, also referred to as network marketing. MLM is any marketing strategy in which the sales force earns commissions for sales they personally make and the sales of a network of people they sponsor and those their recruits recruit.

Network Marketers

Multi-level marketing (MLM) is a strategy used by some direct sales companies to sell their products and services. Like traditional sales channels, multi-level marketing programs involve using networks of independent businesses or persons for sales. In the case of conventional sales channels, manufacturers use a network of brick-and-mortar businesses to sell products. For multi-level marketing programs, independent sales agents are used by manufacturers to sell their products. These sales agents are often referred to as:

  • distributors
  • sponsors
  • network marketers
  • associates
  • sales representatives
  • consultants
  • IBO's (independent business owners)
  • or direct sales agents.

New recruits become part of the distributor's network. The sponsor and recruit make commissions on sales made by the new recruit. In contrast, most affiliate programs (single-level marketing) pay commissions only to the affiliate for their own personal sales activities. The key element for a multi-level marketing business is recruiting others into the distribution network and making commissions from these new recruits' sales.

The strength of any MLM program depends on the quality of its distributors, their experience in direct sales, and what kind of support they provide for their recruited distributors. Unfortunately, some MLMs don't do enough to support their sales force, resulting in lower-quality distributors.

MLM companies often provide a start-up kit and training in techniques for selling their products and services. The company instructs recruits to form their own individual networks by using existing contacts, new leads, family members, and friends. As independent contractors with no employment relationship to the company, distributors are considered self-employed business owners who must pay income taxes on money earned from selling products through retail sales.

Network marketers are profitable if they sell products directly to end customers or to the people they sponsor and earn commissions above the money they pay out for business expenses. However, if the distributor doesn't do this, they may end up with little or no profits at all.

MLM Companies

Multi-level marketing programs have been around since the 1920s, and now there are hundreds of MLM companies. The leaders include Amway, Mary Kay Inc., Shaklee Corporation, Herbalife Ltd., Primerica, and Nu Skin Enterprises Inc..

Multi-level marketing companies also go by several names, including MLM, MLM companies, MLMs, multi-level marketing businesses, network marketing businesses, direct selling companies, or just "so-and-so companies."

Some MLMs may pay on three levels, some may pay on ten levels, and some even claim to pay on infinite levels. Still, all businesses that pay their independent sales force on more than two pay levels are MLM companies.

Legitimate MLM companies only pay distributors on sales that are made, not from recruiting. In other words, commissions and bonuses are only earned from the money generated by distributors as a result of product sales.

While most MLM businesses follow the same fundamental model, there are a few key elements of successful companies that should be pointed out:

1) Some MLMs mainly focus on recruiting new independent sales agents. In contrast, creditable MLMs focus on this and on the product and service being offered.

2) Some MLMs have proven to have longevity while others have not been able to establish sustainability.

3) The MLMs with sustainable earning tend to support their workforce with training sessions and other incentives. In contrast, MLMs that do not sustain their income levels tend not to offer these benefits.

4) MLMs that primarily focus on recruiting new sales agents tend to replace their workforce every two years.

If the MLM company doesn't offer these incentives, it may not have much of a chance of surviving beyond a few years.

How to Succeed in an MLM

Research

If you're considering joining an MLM company, make sure to research it first. Reputable multi-level marketing firms have filed with the state in which they are located. This filing should contain information about them. Also, check with the Better Business Bureau to see if there are complaints registered and how they have answered any complaints.

Don't fall for MLMs that promise big results with little money or work required. The odds of success are not good.

Do a Google search of the company and read reviews that have been written. Some reviewers just want to rant about MLM because they feel slighted somehow. Still, other reviewers offer thoughtful insights about the companies and the products they offer.

Probe this website for articles, reviews, and information. The contributors to this site are determined to provide everything you need to make a good decision, find success in your efforts, and meet your financial and professional goals.

Before joining the MLM company, consider:

  • The helpfulness and professionalism of the person wanting to sponsor you.
  • If you wish to work closely with other people.
  • How well you understand the MLM business model and if you're a good fit for it.
  • The amount and quality of training the company offers.
  • If you and other people will use and benefit from the products and services the company offers.
  • Which marketing method you will use.
  • Whether the MLM company provides incentives for recruiting new sales agents and training/supporting current sellers.
  • The MLM company's record with consumer protection agencies in each state it does business in.

Research the MLM before investing too much of your time and money into it to make sure you can give it your support.

Choose a Great Sponsor

All supportive distributors have their own websites where they offer free training and tools. These websites will include information about the distributor, why you should join their team, how to get started, and what they expect from you.

When choosing a sponsor, find one interested in coaching you through your first few months of business. You can check out their website to see if the training they offer will help you get started on the right foot.

Another way to research your potential sponsor is by checking for testimonials from their downline distributors and finding out whether they have made a profit. E-mail and ask if you can't find this information.

You can also check the MLM company's website to see if it has information about individual distributors.

This website offers you information about individual distributors by clicking here.

Teamwork

Teamwork is essential because you are in business with other people. This means that you're not trying to do it all yourself but rather working together with your sponsored distributors toward a common goal. It's also important because your success is tied to the success of your downline.

Don't ever forget this.

Education

It is always a good idea to look for MLM training when considering MLMs since education can help you make the right decision about MLM opportunities. In addition, training will give you the insight needed to determine if this industry is right for you.

Ensure that the MLM company offers training sessions so that its workforce can grow and learn how to be successful. The lack of training and support will eventually cause a distributor to fail.

It's always a good idea to look for MLM training when considering MLMs since education can help you make the right decision about MLM opportunities.

Ongoing Support 

Another vital factor of MLMs that must not be overlooked is the support network offered by the company. For example, many MLMs provide their distributors support through a help desk, product catalogs for marketing purposes, and other sales aids. Ask your sponsor in-depth questions to find if these support items are offered.

Products and Services

Make sure that you like the product or service offered. Some MLM companies are offering worthless products, so do your homework before joining one. Ask others who have bought the MLM's product or service if they liked it.

Do not join if you think there is a chance of the product not being up-to-par with what has been promised by the person trying to recruit you. In fact, most ethical distributors are more than willing to let you try certain products before you join. Ask them for some samples.

If samples can't be provided, It might be helpful to go ahead and sign up just to purchase the MLM's sample kit at wholesale. This can help you make sure that it has enough value to see the benefits of selling the products to other people. If you don't, just move on.

Marketing

Direct selling can take several forms:

  • One-on-one demos in which an individual personally demonstrates a product or service for another person
  • Home demonstrations (parties) in which a distributor leads alongside a host, other demonstrators, and potential customers
  • Events such as meetings and business lunches that allow attendees to learn about the business and interact
  • Websites that tell a story, increase the likeability and expertise of the distributor, show the benefits of the products, and engage the site visitor.

In your MLM network, you should be working together with your sponsor toward a common goal. Your success is tied to the success of your sponsor and downline distributors.

You can find heaps of information on this topic inside the mlmcompanies.com website and by joining the free membership.

Article Summary

MLM is short for multi-level marketing. It is called multi-level because of the way distributors get paid commissions. New recruits become part of the distributor's network, and recruiters make commissions on sales made by the new recruit. The FTC states that there are two ways to make money in MLM programs. Selling directly to consumers or recruiting new members who then sell to others. This means that MLMs use a network approach where distributors work together with their downline (the recruits they sponsor). As a result, distributors make money from their own product sales and the sales of their downline.


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