What is Multiple Level Marketing?

Multiple level marketing, which is often known as network marketing, MLM or multi level marketing, is an often misunderstood business concept.  At its core, MLM is a direct sales business model that utilizes a tiered compensation strategy.  Today there are more than 4,000 companies that utilize this model in their retail business. In 2009 in the U.S. alone, these companies made $28.33 billion dollars in sales, according to the Direct Selling Association.  This overview is meant to give you a greater understanding of how this business model works and why it is attractive to those seeking a home based business opportunity.

As mentioned before network marketing is a direct sales model of doing business.  Direct sales means that the products and services a company is selling are not sold through a storefront, but instead directly marketed to the consumer by a network of independent distributors.  This allows the company to bypass the cost of a storefront or display space in a traditional retail outlet.  The most common form of marketing done in this type of business is word of mouth advertising.   A consumer uses the product and in turn tells others about it.  Companies utilizing this form direct marketing often provide product samples that their distributors give out to prospective customers.  A distributor is then given a commission on product sales by the company they are representing.   This commission is typically the difference between the distributor’s wholesale cost and the retail sales price.  This compensation generally ranges anywhere from 15-50% of the retail sales price.  With greater sales volume, the distributor is normally entitled to a larger percentage of profit and other performance based bonuses.

The Concept of Multiple Level Marketing

The multiple level concept refers to a leveraging strategy that was introduced to direct selling in the mid 1940′s.  This concept was introduced as a way to provide greater incentive to a direct sales person to build a profitable business.  The idea was very simple and straightforward.  A distributor could recruit others to be distributors and was responsible for training them in the business.   As a reward for doing a good job in their training and recruiting efforts, the distributor was entitled to receive a percentage of commission based on the sales production of those they had personally recruited and trained.   A proactive distributor who did a great job of recruiting and equipping could now benefit from the fruit of those efforts, as well as from their own sales production.   Since that time the models utilized by many network marketing companies allow a distributor to receive compensation from multiple recruiting generations of their business organization.  This simply means that the distributor can benefit from the sales production of those who were trained by those the distributor had initially trained.  It is this generational leverage that makes the multi level marketing business model so appealing to many home business owners.   To foster good training and business practices, most companies require a minimum production level from the distributor’s business group if they are to receive bonuses and incentives tied to the productivity of that group.  This encourages a distributor to work hard at building their sales organization.

Fundamentally, multi level marketing is meant to be a home based business enterprise.  With start up costs often being less than $100, this is a business model that almost anyone can utilize.  The most common mistake is that a person does not take seriously the fact that this is still a business.  If they do not treat it as a business it will not reward them.  On the other hand, those who apply themselves to their business, tend to do very well in this industry.

If you are looking for a home based business that offers great long term potential, multiple level marketing may be the right choice for you.


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