What is a Multi-Level Marketing (MLM) Business – What You Need To Know

If you have ever investigated ways to make some extra money, chances are that you have been introduced to a Multi-Level Marketing (MLM) business at some point.  In fact, it is easy to find MLM’s with a simple scroll through the average person’s Facebook news feed. So, what exactly are MLM’s, and can you really make money with them?  Keep reading for the details.

What is a Multi-Level Marketing Business?

A Multi-Level Marketing business, or MLM, is a business that recruits people to sell their products or services through a commission-only compensation model.  You may also hear these businesses referred to as network marketing or referral marketing businesses. You make money not only by selling the company’s products, but also by recruiting new salespeople into the company.  Think of the model as a pyramid, with the people at the top of the pyramid making the most money.

Differences Between MLM’s and Normal Business

MLM’s differ from a normal business in a few ways.  First, their salespeople are not salaried. In fact, they are generally not employees of the company at all.  They are simply distributors who get paid a commission for selling the products.

Next, salespeople in a traditional business may earn a commission for selling, but not necessarily for recruiting other distributors to the company.  With MLM’s, recruiting is probably even more important than selling. The more people you have under you, or your down line, the more money you should make.

MLM Normal Business

How Do I Make Money With an MLM?

So how do you make money from an MLM business?  While each MLM business sets their own rules when it comes to compensation models, there are a few general rules that are basically the same across the board.  One should be obvious. You make a commission whenever you sell one of the company’s products or services. This is no different than a traditional sales business.

However, here is where the “multi-level” piece comes into play.  Once you recruit someone into the company, you not only get a commission from your sales, but you also get a commission from the new recruit’s sales as well.  When your recruit brings someone else on board as a distributor, you then get commission from both of their sales.

MLM Making Money

This is how the pyramid starts to form.  You recruit people who then recruit people, and those people also recruit new members.  Some MLM’s, such as It Works, pay you commission on sales up to six levels down your pyramid!  Commissions in this case range from 5% – 10%, but that varies by MLM.

Making money through an MLM seems straightforward, but there are other rules that must be met.  Most MLM’s require minimum volumes of sales in order to stay active. Some also require minimum levels of recruitment.  These rules are spelled out in the compensation plan, but those are sometimes difficult to find.

Are MLM’s Legit?

A big question that many people often ask is whether MLM’s are legit, and can you actually make money in them.  The short answer is yes. These are legit businesses, and you can make money from them. In fact, many MLM businesses have billions of dollars per year in revenue.  However, it’s not usually as easy as they would like you to believe.

Some people consider MLM’s to be nothing more than an old-fashioned pyramid scheme.  China has basically banned MLM businesses within their country.  They have set very specific rules about how they must operate, including setting a specific commission percentage and limiting commission to only one level down.

Here in the United States, legitimate MLM businesses are not as regulated, although they have received their fair share of complaints.  The Federal Trade Commission has published information on how to tell the difference between an MLM and pyramid scheme.  There are definitely some social stigmas that go along with MLM’s as many people are tired of being pitched on these opportunities.

Types of Multi-Level Marketing Businesses

If you’ve decided that an MLM may be the route you want to take, you’re probably wondering what options are available.  MLM’s exist in many industries, although the largest seems to be the health and beauty industry. Some of the products you can sell with these companies are

  • Makeup
  • Skin care products
  • Essential oils
  • Vitamins
  • Nutrition supplements
  • Body wraps

Popular MLM businesses

As mentioned above, there are many MLM business options available in the health and beauty industry.  Some have been around for many years, and it seems that new ones are popping up every day. Some of the more popular companies in this space are

MLM Products

If health and beauty products aren’t your thing, you can also find MLM companies that sell other things such as home goods.  Scentsy, for example, is a popular company that sells home fragrance products.

What Makes MLM’s Successful?

There are a few factors that contribute to the success of MLM’s.  Note that there is a big difference between success of the MLM company and your success as a distributor.  Even though the MLM company itself may be making millions in profit each year, you could personally be losing money through your involvement.

Success of the Company

The success of the MLM company itself is related to both how much product is sold as well as how many distributors get signed up.  In most cases, a distributor must pay a fee or buy a minimum level of product in order to sign up with the company. These sales and fees directly increase the bottom line of the company!

Often the promise of big money or other incentives encourage people to join the company, and this helps the company’s performance.  Social media can also play a big role in an MLM company’s success. Recruiting on social media is a big business, and the companies who are popular there have benefited greatly from it.

Your Odds of Success

Nearly every MLM recruiting pitch includes the promise of big money and the bonus of being able to work anywhere.  It is also mentioned that you can be your own boss and determine your own income potential by just working harder. However, how many people realize these promises of big bucks and easy money?

The answer is very few.  So few, in fact, that a report published by the Federal Trade Commission states that over 99% of people who join MLM’s end up losing money as a result.  Let that sink in a moment.  Less than one out of every one hundred people who sign up with an MLM ever make a single dollar.

This isn’t to say that you can’t make money through an MLM.  You can, and there are many people making lots of money. However, the odds are against you.  Most MLM companies publish earnings data that shows how many of their distributors are within certain earnings categories.  This data is often hidden in very fine print and difficult to find, but it is generally available if you scour every page of their website.

MLM Scandals

In recent years, there has been a general distaste for MLM companies from the public.  With so many people likening them to pyramid schemes, there have been a few major news items about MLM’s.  One of those involved the diet and supplement company AdvoCare.

AdvoCare decided to leave its MLM business model behind in the wake of the controversy.  There were many, including the FTC, who took issue with AdvoCare’s compensation model. AdvoCare now follows a more traditional sales and distribution model.

Tips for MLM success

One of the biggest things you need to remember to be successful in an MLM is that you need to be a great salesperson.  At the heart of every MLM, the way to make money is through sales. This may be the sale of a physical product or “selling” the company to your new recruits.  If you don’t like sales, then an MLM is not for you.

Also, do thorough research on any MLM before joining.  Make sure the company is in good standing with the Better Business Bureau and doesn’t have too many complaints.  Closely research the MLM’s compensation plan and talk to others who may have already signed up. Try to find someone you trust so that you can get a fully honest opinion.

Finally, make sure that you can afford to lose money on the endeavor.  Odds are that you will lose some money, so you don’t need to spend your last dollar to pay the signup fee.  Thorough research, great sales ability, and hard work can enable you to make money with an MLM.

Kevin Martin

Kevin is an ambitious entrepreneur that is obsessed with all things related to finance. From a young age, Kevin has always been involved with side hustles ranging from online selling to freelance work. Over the years, Kevin graduated from side hustles and started launching multiple online and offline businesses. Kevin is a serial entrepreneur who loves starting new businesses and exploring all things related to business and finance. He is constantly looking for new ways to save money, invest money, and create income streams.

Leave a Reply

Your email address will not be published. Required fields are marked *