In the era of diluted messages all around the web; it is important we get our facts clear in other not to be a victim. There are so many types of online business model in which MLM (Multi level Marketing is one of them, that is why; I will be talking about Multi level marketing today. What is Multi level marketing?
What is ‘Multi-Level Marketing’?
Multi-level marketing is a strategy or model used by companies to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s “downline.” All distributors also make money through direct sales of products to customers.
Multi level marketing is also known as network marketing. This is a kind of business where franchising and direct selling are combined. This business makes a person associated to a company in an independent transaction approach. It is an approach where the company creates a contactor relationship to the person who wants to expand his business.
The members make their earnings based on the sales they have reached in that particular product or service. It also includes the sales of the person that they have recruited to join the business. Most of the time the individual who has recruited more members and provided a good sales output on the product compensate higher because of the effort to transact in two different fields.
Is ‘Multi-Level Marketing’ MLM Legit?
Multi-level marketing is a legitimate business strategy, with some controversial issues. One of which is the pyramid schemes; some people believe MLM is a pyramid scheme, which uses money from new recruits to pay the people at the top, often take advantage of people by pretending to be engaged in legitimate multi-level marketing. Pyramid schemes can sometimes be spotted by their greater focus on recruitment than on product sales.
How To Know If An MLM (Multi-Level Marketing) Is Legitimate?
One of the best way to determine if a Multi-Level Marketing company is legit or not is to know whether its products are sold primarily to consumers or to its members who must recruit new members to buy their products. If its products are sold primarily to consumers, then the company is a legitimate multi-level marketer. If its products are sold members only, it could be operating a pyramid scheme, which is illegal.
Commissions are earned in the process of selling a particular product or service in a legitimate network marketing. There can be no earnings in what they call as a “sign up fee” or for just recruiting yourself alone. This kind of marketing is always criticized because of the questionable recruitment process where they get their revenue and profit. They get their sales from members and new members, which are considered the end users of the product and as the distributors.
These criticisms led to the major changes in the multi level marketing in the early 1980s when many companies have started to allow their members to concentrate only on marketing and not on distributing or stocking the product. Most multi level marketing firms nowadays perform as fulfillment firms by taking the tasks of shipping the product, paying the commissions and taking orders from their clients.
Many people who are victims of the illegal schemes in multi level marketing are required to buy expensive products, but most of these schemes do not last long because most of the sales are not easily resold.
What Is A Pyramid Scheme?
A pyramid scheme is an illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, the earlier investors/recruits above them receive. A pyramid scheme does not involve the selling of products. Rather, it relies on the constant inflow of money from additional investors that works its way to the top of the pyramid.
There are “pyramid schemes” or Ponzi schemes, which are considered illegal. Most people associate multi level marketing to these kind of schemes because they also recognize themselves to be a legitimate networking business. Because of the bad image brought up by these schemes, many prefer to use their names for their businesses as “home based business franchising” or “affiliate marketing”.
How Does ‘Pyramid Scheme’ Works?
An individual or a company initiates a pyramid scheme by recruiting investors with an offer of guaranteed high returns. As the scheme begins, the earliest investors do receive a high rate of return, but these gains are paid for by new recruits and are not a return on any real investment. From the moment the scam is initiated, a pyramid scheme’s liabilities begin to exceed its assets. The only way it can generate wealth is by promising extraordinary returns to new recruits; the only way these returns receive payment is by getting additional investors. Invariably these schemes lose steam and the pyramid collapses. Let us look at the two common types of pyramid schemes.
Basic Pyramid Scheme
A pyramid scheme is a variation of the Ponzi scheme, which offers a promise of high investment returns that are not available from traditional types of investment. In practice, the structure of pyramid schemes induces others to recruit victims and collect money that eventually makes its way to the top of the pyramid. In a typical setup, one person recruits a second person to invest a certain amount of money. The second person recovers his investment by recruiting people under him to invest in the scheme. The more people he can recruit under him, the greater his profit and a certain percentage of the profits of all recruiters work their way up the pyramid to enrich the recruiters before him. Each person must recruit a certain number of people. The process continues until there are fewer people at the bottom of pyramid, and it collapses under its own weight. Generally, only the people near the top of the pyramid make any significant profits, and people near the bottom never recover their investments.
Business Pyramid Scheme
On their face, multi-level marketing companies are structured like a pyramid. Individuals have the opportunity to invest in their own businesses, which, ostensibly, distribute a product. However, with some companies, the real profit opportunity comes not from selling products but from inducing others into buying into their own business, with a percentage of the investment moving up the hierarchy of recruiters.