Thousands of years ago business owners sold their products to friends, acquaintances, and relatives. Everybody in their village fell into one of those categories. Unfortunately, some MLM distributors are still trying to sell products to friends, acquaintances, and relatives. In ancient times some merchants traveled great distances, displaying their goods at bazaars and so fourth. Kind of like renting a hotel meeting room today. It was direct selling. When they left one village or town they would often leave some of their products with a local merchant to sell on consignment. In other words, they recruited others to sell their products. Sometimes they had “Reps” in 5 or 6 villages. They were the first MLM’ers.
Today’s MLM’ers also have two jobs just like those of old. (1) To sell products. (2) Enlist and train others to do the same. Multi-level marketing is one person selling a product or service to another person.
Be on your guard of MLM companies where the emphasis is placed on recruiting and not on direct selling. These are pyramid schemes and are illegal. Some of these companies may be just within the guidelines of being legal but are questionable at the least.
You say, “That sounds more like direct selling than it does of MLM marketing.” Bingo! That is exactly what MLM is all about, direct selling. Then why is it called MLM rather than just direct selling? The reason is in the commission structure.
In MLM, no one earns any money until a product or service is sold. Now, a sales person needs to be trained. In conventional selling, I’ll use retail auto sales as an example, the salesperson receives a commission and the sales manager receives a commission. Sometimes there are several managers. A team manager, a sales manager, the used car manager, and a general manager, all of them may receive a commission on the one salesperson’s sale.
In MLM there are also managers and trainers who receive a commission on the sale. These managers, or sponsors, as they are called in MLM, help the sales person with training and support. They earn their money for the assistance they give to their sales team, or downline, as it is called in MLM.
Any sales representative can become a manager (sponsor) by being willing to devote time to training and supporting new sales representatives. In MLM, sales representatives are usually called distributors, independent associates, or by some other term, but in essence they are sales representatives. This is all perfectly legal and is good for all parties involved. Then why has there been such adverse publicity about MLM?
The answer to that question is quite simple. Many companies and/or sales representatives have deviated from the basic concept of selling a service and providing ongoing training and support for their sales representatives (downline) and put their emphasis on recruiting.
Many companies and/or distributors also require their downline to purchase large quantities of products beyond what they can personally use. A good rule of thumb for this is; you should only have to buy the amount of the product you would use if you were not in the business.
Again be very on guard against any company that requires you to purchase large quantities of products for your personal use in order to qualify for commissions. Higher commission levels based on higher volume sales is fine. However, you should not have to buy more than you can reasonably use in order to qualify for commissions.
That is not to say that you should not be a consumer of the products you sell. Your personal experience with the product and your personal recommendation is crucial for building confidence. Be a product of your product. Just don’t allow yourself to be forced into buying more products then you would use if you were not a distributor.
Another thing to be on guard against would be “Hidden Fees” If your company offers a replicated web page, this should be free. You should not be charged a fee for on-line access to your genealogy. More important, you should not be charged “membership fees” for on-line company training or access to other resources the company offers their distributors.
What about sign up fees? What about application, or enrollment fees? Many companies charge new distributors some type of entrance fee in order for them to “work the business.” Distributors fees are OK, if that fee is not more than $50.
Here is some good advice: If a company wants to charge you $100.00, or more to join their opportunity, and then another several hundred dollars in products, don’t walk away from that company. Run from it.
I am not saying that your MLM company should give you all your brochures, etc for free. After all, you are an independent contractor. You own your own business. As with any business, you will have expenses related to your business. I am saying that making money from distributor fees should not be a profit-center for the company. After all, if your company is selling shoe shine polish, they should make their money from selling shoe shine polish, not from fees paid by the retail sellers of the shoe shine polish. Selling distributors business, cards, brochures, flyers, catalogues, etc should not be a profit center for the company. Again, if the company is selling shoe shine polish, the company’s profits should come from selling shoe shine polish, not selling business cards and brochures
The ideal MLM is one where you can get started for less than $50 and not have any required monthly personal purchases. You should receive commissions on your personal sales and not have to fill a matrix before you start earning serious money. You want a commission on your sales whether they are on the left leg or right leg of some difficult to understand comp plan. A 50% commission on all of your 1st sales to a customer would be nice.
I have been a “student” of MLM for over 40 years. I went to my first Amway presentation in the late sixties. I didn’t join and never regretted not having joined. But the industry has always fascinated me. I have a pretty good understanding of every complicated comp plan (and there are a ton of them) ever invented.
Am I involved in MLM now? Yes I am. However my entrance into the industry was not intentional. Yes, I was very knowledgeable of all aspects of the industry, having been a “student” of the industry for over 40 years.
So how did I go from “student” to participant? I began buying some products and services that I needed. Since the company was paying commissions for recommending these products or services, which I was doing any way, I signed on.
Originally published in Ezine Articles in 2008.