MLM Business Model

Multi level Marketing As a Business  

Multi Level Marketing is a very popular business model in the Western countries. It is a kind of hybrid of the method of distribution of goods and the method of building a sales network. It is one of the safest (carries a very low risk) ways of conducting a business activity. The knowledge about functioning of this business model, both among theoreticians (scanty literature on the subject) and practitioners, is still insufficient in Poland. Although each MLM company dictates its own specific financial compensation plan for the payout of any earnings to their respective participants, the common feature that is found across all MLMs is that the compensation plans theoretically pay out to participants only from two potential revenue streams. The first is paid out from commissions of sales made by the participants directly to their own retail customers. The second is paid out from commissions based upon the wholesale purchases made by other distributors below the participant who have recruited those other participants into the MLM; in the organizational hierarchy of MLMs, these participants are referred to as one's down line distributors.

MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship referrals and word of mouth marketing, but most importantly they are incentivized to recruit others to join the company's distribution chain as fellow salespeople so that these can become down line distributors.According to a report that studied the business models of 350 MLMs, published on the Federal Trade Commission's website, at least 99% of people who join MLM companies lose money.[8][9] Nonetheless, MLMs function because down-line participants are encouraged to hold onto the belief that they can achieve large returns, while the statistical improbability of this is d-emphasised. MLMs have been made illegal or otherwise strictly regulated in some jurisdictions as merely variation of the traditional pyramid scheme.