What are MLM Companies? A short Guide

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Do you want to get into multi-level marketing but you are not sure whether they are legit or scams? Read this short guide on what are MLM Companies to find out more!

Have you ever been to a party where a friend enthusiastically shares with you this amazing new business opportunity that you should totally sign up for? More often than not, it turns out to be a multi-level marketing scheme. The over-enthusiastic approach of the sellers and the seemingly shady details can easily mistake these schemes to be a scam. But are they really a scam? Or is making money that simple? This is one question that troubles many aspiring marketers, and this article tries to answer this question.


What is Multi-Level Marketing?

Multi-Level Marketing (MLM) is also often referred to as Network Marketing. Basically, in multi-level marketing, you can earn money in two ways:

  1. You can sell the products of a company directly to your customers, which would make you a “distributor” or a “contractor”. You can do this by approaching potential customers face-to-face, over the phone, or even online through exciting content and social media blog posts.
  2. You could also recruit new distributors for the company, who would also market products for that particular company. They become part of your “downline”, or the sales network. You earn a commission on any product you downline sells, which adds even more to your earnings.

This is what makes MLMs different from scams. Since MLMs have an actual product to sell, you can get paid even if you do not recruit distributors.


Traditional Marketing vs Multi-level Marketing

MLMs are different from traditional marketing, in the sense that supply chains are much shorter in MLMs.

In a traditional marketing scheme, the goods are manufactured in a factory at first. The product then passes hands through a distributor, then a wholesaler, and then a retailer. Finally, you – the consumer – goes to the retailer to buy the product, thus completing the supply chain.

On the other hand, MLM companies shorten the supply chain by eliminating the need for wholesalers or retailers. Instead, here the distributors sell the product directly to the consumers. MLM companies maintain that this helps to reduce costs for the consumers.

Another difference involves the way companies advertise the product. Traditional businesses advertise their products through media outlets such as TV, radio, newspaper, and billboards, or digital marketing and social media in the present day. MLM companies rely on their distributors to advertise the products for them.


Pros of MLMs

There are many advantages of being an MLM distributor, some of which are highlighted below.

Easy to Start

The best thing about working with MLM companies is that there aren’t many barriers to entries. You do not necessarily need any professional qualifications – anyone can sign up for it. Some companies let you sign up as a distributor for free, some others require you to pay a small amount for your starter kit and sample products. This is a much cheaper option compared to wholesale or retail marketers.

Flexible Strategies

In MLM marketing, you also do not have to depend on your company’s business strategy or traditional tactics. Once you receive the product, you can sell them in any way you see fit. You could approach your customers face-to-face, you could publicize them on social media, and maybe you could even throw a product launch party! The sky is the limit, and you can be as creative as you want to be.

Flexible Scheduling

Much like how you can decide your own marketing strategy, you also get to choose your schedule. You can decide when you work, with whom you work, and where you work. You could go wild and write a blog post from your bedroom wearing pajamas at 3 in the morning! As long as you’re selling the product, it’s all good.


Cons of MLMs

Whilst there are many pros of MLM marketing, it comes with a set of cons as well.

Sales Skills Required

Whilst it’s true that you don’t require any professional qualifications to become an MLM marketer, sales skills are what’ll make you stand out. Since there are no limitations to entry, you’d have to compete with a lot of other distributors. Unless you’re exceptionally good at making sales, you’re less likely to generate enough income through MLM alone.

Lack of Control

MLM companies give you the flexibility in deciding your strategy and schedule, but the product is still theirs. This is one aspect you have no control over. If the company’s reputation takes a hit, your income and reputation would be affected as well. Similarly, if the company decides to stop making a product that makes the most of your revenue, there’s nothing you can do about it.

Possibility of Rejection

Most people are probably not going to be as excited about the product as you are. So you better get used to the idea of hearing “no” multiple times a day, because it’s guaranteed that you will.


MLM Marketing vs Pyramid Schemes: Are MLMs a Scam?

Most people often confuse MLM marketing with pyramid schemes, and this is why they mistake it for a scam. But the truth is, MLMs are not scams, whereas pyramid schemes are. There are many legitimate MLM companies out there, but pyramid schemes are illegal all over the world.

As stated above, MLM companies have a product to sell. The companies pay distributors commissions to sell the products for them, as well as for recruiting new distributors for the company. On the other hand, pyramid schemes are designed like MLM companies, but they do not have any real product. Pyramid schemes aim to make money solely based on recruiting new participants, and you’re often required to pay large amounts of fees, even before you start selling your “product”.

The bottom line is, pyramid schemes are scams, and MLM companies are not. To efficiently determine whether a business is a legit MLM company or a pyramid scheme, read up on their business plan and sales literature, and speak to people who’ve had experience in this sector.


Conclusion

Multi-level marketing companies do not follow the traditional route for business growth, and they can be a viable option for you to earn some money. However, whether MLMs are right for you depends entirely on your preferences. If you are passionate about the product, like working with people, and can handle rejection well, then MLMs can be a great opportunity for you.

Have you any experience working with an MLM company? It would be nice to hear your story in the comments below.


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Disclosure: This post contains affiliate links. For more information please see my disclosure here



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2 thoughts on “What are MLM Companies? A short Guide”

  1. Thank you for your well-done article about  Multiple Level Marketing.  I do think there are companies that can offer some people a good income using this kind of marketing.  We all remember Amway.  We all had relatives or friends who were in the program.  We all have tried our share of the product.  There were more through the years, but the ones who had a garage of unsold product go bad were many.  The ones enjoying a comfortable lifestyle?  Well, they were few.

    With all the different personalities, it stands to reason some were more suited to sales success than others.  The rare person who could sell, recruit and lead had a good chance to do well.  But so few were suited with all 3 of these skills.  I think that is why the MLM companies fell into practices that were more like pyramid schemes.  Being able to control all the people who are recruited into these companies as they exploded in growth and make sure they were properly practising the company guidelines was difficult.  Thank you for your opinions about MLM companies.

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