Multi-level Marketing (MLM) Explained in Simple Terms

The MLM Business Model

Multi-level Marketing (MLM) is a business model where a company uses networking as its marketing strategy to promote and extend the presence of its products. Instead of paying costly commercial ads that are seen in the middle of television programs, sponsoring television dramas by showing the products being used by the main characters of the series, or by posting ads on billboards, the company let the distributors promote the products through their connections, and paying them in return. Multi-level Marketing or Network Marketing doesn’t only thrive to sell and promote their products, but also, they offer the distributors an opportunity to grow their business and grow their income. Not totally but as similar as to how franchising works, the company allows their distributors to use the products, the product's reputation, and the company's marketing strategy, to jumpstart a business.


The MLM Business Structure

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Network Marketing is legal but has always been mistaken as a Pyramid Scheme due to its business structure. And to help you out determine whether the business you're joining is a legitimate MLM or not, below are some key differences.

The Difference Between MLM and a Pyramid Scheme

Pyramid Schemes are businesses that mostly gain their profit through recruitment, and normally without products being involved. In Pyramid Schemes, they recruit people to get back what they have invested without giving the same amount of value of products to the people they recruit. Thus, creating a pattern in which only those people at the top earn an income while those at the bottom don't.

On the other hand, the distributors of MLMs recruit people by offering products having the same or higher amount of value as the money invested by new distributors to join the company.

Another thing about MLMs is that the distributors still earn money even without recruiting someone. Distributors earn by selling the products to clients and consumers, and by consuming the products on themselves.

When you are a distributor, you are entitled to get discounts on the company products which means when you sell the products with their original retail price to non-distributors, you earn profit. Another thing in MLMs is that each product has points that accumulate whenever a distributor reorders. When a distributor reaches a certain amount of points that correspond to a certain rank or position, that distributor may have the privilege to get bigger discounts, thus earn bigger profits.

The Advantage of the MLM Business Structure


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The real essence of the MLM business structure is to produce leverage and duplication. Leverage is when distributors earn commissions from their network’s income stream, allowing the distributors to have time and financial freedom if their network of people is big enough to generate income even without their presence. Duplication, on the other hand, is a system designed to allow rookie distributors to copy and improve the skills and strategies of an expert distributor, to produce a similar amount of earnings in a short period. Duplication is key to leverage.


The MLM Opportunity

MLMs offer a great opportunity for starting entrepreneurs, doing all of the lengthy processes such as product-making, feasibility studies, creating marketing strategies, and managing important legal business papers to help them jumpstart their business as soon as possible. It provides equal opportunities to people whatever financial class they belong to or whatever educational background they may have. As long as one has the dream to be financially free and the desire to help other people as well, anyone can succeed in network marketing.