Ever wondered what multi-level marketing (MLM) is? Here, we take a deep dive into the business model, looking at its pros and cons, as well as some of the best known MLM brands.
Many people become aware of multi-level marketing when they’re contacted by a friend or acquaintance offering to tell them more about a fantastic business opportunity. The venture involves joining a company and selling its products while recruiting friends and family to become business owners too.
So, what exactly is MLM?
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What is multi-level marketing (MLM)?
MLM, also known as network marketing, is a type of business ownership. The model forms the foundation of many companies, including:
- Arbonne International
- Utility Warehouse
- Forever Living
- Simply Naturals
- Tropic Skin Care
- Vorwerk & Co.
- Mary Kay
- Tupperware Brands
- Nu Skin
Business owners recruit people to help sell their products. These workers can then each hire their own set of employees, and so on. As more and more sales are made across the company, every ‘recruiter’ takes a share of their workers’ sales income. This collected capital feeds back up the chain, so the people close to the top can make a healthy revenue.
According to the Direct Selling Association (DSA), 77 percent of people involved in MLMs are women, and most of them are mothers. Around 481,000 women in the UK have signed up to an MLM in an attempt to extend their maternity leave or quit a nine-to-five job they dislike.
Does multi-level marketing work?
Multi-level marketing can achieve great results. Here are statistics about just three MLM businesses:
- Avon - Avon is a direct selling company in beauty, jewellery, fashion and household categories. It was founded in 1986 and has annual sales of £8.8 billion and more than 6.5 million sales associates.
- Amway - This company was founded back in 1959 and generates annual sales of £8.5 billion. There are over three million sales associates selling its food and beverage, wellness and cosmetic products.
- Herbalife - This business was born in 1980 and has grown to generate annual sales of £3.7 billion. There are over 2.7 million associates in its portfolio selling cosmetics, nutritional supplements and personal care items.
What are the benefits of multi-level marketing?
- MLM programmes entice prospective business owners by promising unlimited earnings. In theory, if you work hard, you can boost your take-home pay.
- You can work from home and arrange your schedule around existing commitments. Many MLM companies claim you can work part-time hours while earning a full-time wage.
- As business opportunities go, multi-level marketing has relatively low start-up and ongoing costs. You’ll probably buy a starter pack for a few hundred pounds and then pay to attend regular team training sessions, sometimes called ‘success days’.
- You don’t need any experience or qualifications to become a multi-level marketer, just the confidence and know-how to sell your products and recruit people to join the business.
- Many MLM programmes offer attractive rewards; for instance, Avon representatives can earn holidays abroad and Amway offers its sales associates cash bonuses based on how well they perform.
What are the disadvantages of multi-level marketing?
Multi-level marketing has a stigma surrounding it, as it’s regularly compared to illegal pyramid schemes. Although MLM companies are not pyramid schemes, their structure is similar; the founders are at the top of the recruitment structure, and there’s often a saturated market at the bottom.
- There’s a lot of rejection in MLM because of the stigma attached to it. Multi-level marketers have an average conversion rate of just one percent. So, for every one person who’s interested in joining your team, there will be about 99 people who say no.
- When you have people on board, you effectively become a people manager. You support them to recruit their friends and family so you can earn money from them too. There’s little money in selling products, so your focus needs to be on recruitment, and some people find this challenging.
- There are no territorial restrictions, so an unlimited number of people can join an MLM company in one area. Often, this creates regional pockets of marketers, which saturates the market and reduces individual profitability.
Are you likely to make money with an MLM scheme?
Unfortunately, research suggests many multi-level marketers actually lose money. Having taken operating expenses and other costs into account, Jon Taylor, who is dedicated to revealing the truth about MLM, suggests 99.7 percent of people who join an MLM end up at a financial loss. To put this into perspective, for every 1,000 people who join an MLM company, only three people earn more money than they spend.
The profitability figures are low because of MLM’s ‘pay to play’ feature. As a distributor, you need to buy a certain amount of products to qualify for the commissions and bonuses, and work your way up the pay plan levels. Also, many MLMs expect downline participants to pay for conferences, books, training, recordings and general tools to be successful.
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How do I choose a good multi-level marketing company?
Here are some factors to consider:
- People - Consider who you’ll be going into business with. Will they be invested in helping you build a strong business? Your sponsor needs to be your coach and adviser, able to empower as well as train you.
- Training programmes - Research the coaching you’ll receive. A good MLM organisation will provide training in business, recruitment, leadership, sales and marketing.
- Compensation plan - How will you be paid for your work? MLM plans usually involve a commission and bonus structure. Do your research and make sure you’re happy with it before you get involved.
MLM not quite right for you?
The complete flexibility and low start-up costs associated with MLM appeal to many people, but the model does have its drawbacks. If you want more security from your next business venture, you might like to look into franchising instead.
When you buy into a franchise, you get the right to set up and run a business under a recognisable brand with a proven model. There are over 900 franchises in the UK offering all the training and support needed to see success.
Franchise investment costs vary depending on the industry, size and location of the business you launch, but there are hundreds of affordable opportunities across sectors. We have lots of fantastic articles explaining the basics of the franchise model:
- Franchising 101: 8 Signs You're Ready to Start a Franchise
- Franchising 101: Understanding the Pros and Cons of Franchising
- Franchising 101: Approaching Your Franchise Investment as a Retirement Plan
- Franchising 101: How to Buy a Franchise Business in 10 Steps
You can also browse our other franchise articles to find more handy resources, or use the search box to find specific information.
Alice Tuffery, Point Franchise ©