What is MLM?
An Overview of the MLM Industry.
So what exactly is multilevel marketing, or MLM?
Simple question, but the answer is not quite so simple.
Interested in getting into one of the fastest growing industries in the world?
Want to understand what all these ‘home-based’ businesses are all about?
This webpage is intended to give you a basic overview of the MLM industry.
Section 1: Basics. The basic structure of a multilevel marketing company
Section 2: History. How the MLM industry evolved into one of the fastest growing industries.
Section 3: Controversy. MLM is a real business, and how it differs from a Pyramid Scheme.
Section 4: MLM Success. What makes a successful distributor.
Section 5: Current State. Learn where the industry currently is headed, and predicted growth.
Introduction to Multi-Level Marketing
Section 1: The Basics
Multilevel marketing – MLM – is one form of direct selling, which is a business model that relies on selling products directly to
consumers at a person-to-person level without a brick-and-mortar retail location. This has numerous advantages, such as avoiding the
cost of a physical location. Over time, the share of the direct sales industry occupied by MLM has grown to the point where nearly all
direct sales is done through a multilevel marketing structure.
Basic Structure
Within direct sales, multilevel marketing is structured such that:
· Not only are salespeople, (known in the context of MLMs as distributors) paid commission on the products they sell;
· Distributors recruit a network (hence the term “network marketing”) of subsidiary salespeople.
· Distributors receive commission based on the revenue generated by their recruits.
· The distributors that an individual has recruited and from whose sales he or she receives further compensation are
known as the individual's downline.
Developing a well-managed downline is one of the most critical parts of building a successful distributorship.
The networking nature of MLM is also an advantage to the company, as it allows the organization to expand as rapidly
as its distributors are able to recruit more salespeople in their downline, without having additional overhead the way traditional
retail sales would.
So far, we have two advantages over traditional brick-and-mortar businesses – lower overhead and quick expansion.
Sound confusing? It is, a little.
Take a look at the diagram:
· Distributor A recruits distributors B1, B2 and B3.
· B1, B2, and B3 go on to recruit distributors C1 - C3.
· C1 – C3 each recruit several people, who become distributors D1 - D9.
A is receiving income, not only from A's own sales, but from the revenue generated by all of the reps
from level B onward, as far “down the line” as the network extends.
Distributor A
Level 1 - B1 - B3
Level 2 - C1 – C3
Level 3 - D1 – D9
Section 2: History
“It is generally accepted that the first multi-level marketing plan was introduced in 1945 by the California Vitamin Company (shortly afterwards to become Nutrilite). The plan allowed Nutrilite distributors with at least 25 regular customers to recruit new distributors
and draw a 3 percent commission from their sales. Unlike traditional direct selling, this was an ongoing payment whenever the
customer re-ordered, allowing direct sellers to build a sales organization that could generate a residual-like income.” As an interesting
side-note, Nutrilite was part of the genesis of Amway, currently among the largest direct-selling companies in the industry.
The DSA
According to its website, “The Direct Selling Association (DSA) is the national trade association of the leading firms that manufacture
and distribute goods and services sold directly to consumers,” and has been around since 1910. Its ten original members included the company that would eventually become Avon Products, Inc, though most of the members actually functioned in a credit and collections capacity at the time. It did not become the Direct Selling Association until 1968.
More recently, multilevel marketing has grown rapidly and now accounts for nearly all of the direct sales industry. The DSA reported that
in 1990 twenty-five percent of members used MLM, growing to 77.3 percent in 1999. By 2009, its fact sheet showed that 94.2% of members
were using MLM, accounting for 99.6% of sellers, and 97.1% of sales.
Section 3: Controversy
Now, this part is particularly important to someone looking into MLMs for the first time. MLMs have frequently been tarred with the same brush as socalled “pyramid schemes” and other unsavory practices. In fact, it's absolutely crucial that new distributors join the industry with heads up and eyes open. Pyramid schemes and their ilk are like the cousin nobody likes to bring up at Thanksgiving dinner.
They are out there, and they give the rest of the family a bad name. Even within the industry being injured by their antics, the discussion is uncomfortable. The average person can have a really hard time telling the difference. Not only does this scare away customers and potential distributors; it leads the media, some economists, and even the legal system to frown on legitimate MLMs.
Fortunately, there is a clear distinction. It's as simple as checking out the information provided by the Bureau of Consumer Protection and the Federal Trade Commission (precisely the same article is available from either agency, just under a slightly different heading).
By far the simplest criterion is compensation:
· If compensation is based largely (or solely) on recruitment, rather than on sales, chances are it's not a legitimate marketing opportunity.
· Look back at the distributor diagram. Imagine the only revenue coming up from below was due to new people being added. It's a house of cards, right? As soon as new recruits get a bit thin on the ground, the revenue dries up.
· The DSA, in speaking for a large portion of the industry, is very conscientious about making sure its members stay on the ethical side of that line. Its Code of Ethics clearly states that “[M]ember companies shall remunerate direct sellers primarily on the basis of sales of products, including services, purchased by any person for actual use or consumption.”
Not that there aren't further practices and problems to be aware of, but the industry as a whole is well-policed. The DSA doesn't fool around, and states in no uncertain terms that its Code of Ethics “ensures that member companies will make no statements or promises that might mislead either consumers or prospective sales people. Pyramid schemes are illegal and companies operating pyramids are not permitted to be members of the DSA.” Ethical business practices are as important to the MLM industry as they are for any other business model.
Section 4: MLM Success
The Direct Selling industry, and the specific subset of MLM companies, are like any small business – it has a risk of failure with the potential for huge success. How can you improve your chances at succeeding in the MLM industry?
Basics of Successful Distributorship A simple Amazon search on “Direct Marketing” will quickly show that there are literally tens thousands of published volumes of advice and strategy on building a successful direct selling business. A person building a successful distributorship could probably take their pick of strategies, but the real keys to most boil down to several key strategies.
Keys to MLM success:
1)Being a good salesman – without sales, there's no commission for the distributor and no revenue for the business.
2)Getting the right training – there are details and techniques in ANY industry that have to be learned over time.
Jumping in without knowing what's there can put a person out of their depth in a hurry.
3)Using the right tools – managing sales, inventory, financial records, downline personnel, etc, can be overwhelming.
Fortunately, there's a wide variety of excellent software purposebuilt for helping distributors and companies manage their networks efficiently and effectively. This is particularly pivotal as more of the industry moves online.
4)Building the right downline – major success from the sales of a single distributor is unlikely. It's critical to build a network of motivated, successful downline distributors and manage it effectively.
Section 5: Current State of the Industry
The DSA plays a major role in lobbying for and regulating the the direct selling industry in the U.S. and in several other countries. The table below lists the top ten direct selling companies worldwide. Nearly all are DSA members (and 2 of the 3 non-members in that list – Natura and Oriflame – are based outside the U.S., in Brazil and Luxembourg, respectively).
Company Name Year Founded 2011 Revenue
Avon Products 1886 US$ 11.3 B
Amway 1959 US$ 10.9 B
Herbalife 1980 US$ 3.5 B
Natura 1969 US$ 3.01 B
Vorwerk 1883 US$ 3.0 B
Mary Kay 1963 US$ 2.9 B
Tupperware 1946 US$ 2.6 B
Oriflame 1967 US$ 2.1 B
Nu Skin Enterprises 1984 US$ 1.7 B
Belcorp 1967 US$ 1.6 B
The DSA is joined by other industry associations, including the MLMIA and, on a global level, the WFDSA.
As of its most recently released figures, DSA's information indicates that in the U.S., the “top direct selling market” globally, total sales
were nearly $30 billion and the direct selling market significantly outpaced GDP growth! The future looks bright for MLMs, particularly as more and more commerce moves online. Opportunities for software-assisted networking abound in the digital age, and direct selling
no longer requires a knock on a door.
Here are more Direct Selling facts posted by the DSA:
· According to the DSA there are around 56 million people in the entire world engaged in the network marketing industry.
56 million people is approximately the population of the whole country of Canada — doubled.
· The DSA website also says, “Nearly half of U.S. direct selling companies experienced sales growth and another 14 percent
remained flat.” · “Smaller direct selling companies (those with annual retail sales under $3 million) fared best with 66.7 percent
showing growth and an average retail sales increase of about 30 percent.
· The network marketing industry has grown by ninety percent during the last ten years.
· More than 14 million men and women own their own home-based business.
· Home-based businesses generate more than $1 trillion annually in the U.S, and the industry has grown 15.6% annually since 1995.
· Direct selling represents $30 billion in sales in the U.S. and $100 billion worldwide.
· The Direct selling industry adds 175,000 people each week in the U.S. and 300,000 worldwide.
There is money in the direct selling industry if you have the right information and the right tools to compete.
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