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MLM Network Marketing: What Is It?

Jul 22, 2008
MLM or Multi-level marketing, also called network marketing, is a type of merchandising which involves recruiting of other sales persons or downline. In an MLM, a person relates with a business institution as an independent contractor or dealer. You are usually compensated based on your sales of goods or services, as well as the sales made by your recruits or downline.

Many big companies use network marketing to promote their products and services. Avon and Tupperware are examples of organizations that can be categorized as employing multi-level marketing or MLM. Business establishments utilizing an MLM strategy usually save money on advertising and promotional costs. Consequently, they deem it fair to afford favorable compensation plans for network marketers for all their efforts.

It took some time for MLM to establish its legality and attain an amount of respectability. It was in the midst of 1980's when business organizations started handling the stocking and distribution of goods as well as paying commissions earned by members through selling.

Most, if not all, MLM companies began to invade the World Wide Web when the Internet gained popularity. Lots of established companies took advantage of the Internet to promote their products and services. The Internet was also used by new MLM companies as their starting point for their businesses. They are generally considered as online MLM's.

Unfortunately, the Internet was also used by fraudsters as a new medium for propagating their scams. New schemes proliferated and even old, exposed ones were revived with a mask of modernity. The law was slow to catch up and individuals were vulnerable. With the distributed nature of the Internet, the wrongdoers were able to hide their real identities or location.

If you are interested in joining an MLM or network marketing, it is advised that you first examine the company's compensation plan. Find out if you will be paid based on actual sales to clients and not from money paid by your downline. If you earn money by simply recruiting and without actual selling of products or services, then it is a Ponzi scheme or an illegal pyramid scam.

MLM scams usually require you to pay high entrance fees or buy their expensive goods to become a member. Oftentimes, they close shop after a short time. Members are left with financial losses except those who got in early or at the top of the pyramid. The Federal Trade Commission has issued warnings against MLM companies who offer higher incentives for recruiting new members than on sale of products and services.

Various compensation plans have been devised by MLM companies. The most popular and oldest of which are Stairstep Breakaway or Unilevel plans. These plans feature three types of pay -- baseshop overrides, generational overrides and executive bonuses. Managers and non-managers are the two types of distributors in these plans.

Other MLM compensation plans include matrix plans, binary plans and matrix schemes or elevator plans. As with other investments, it is essential for you to do careful research before you take the plunge.

Multi-level marketing adopts a hierarchical structure and a massive downline can improve your earning potential. However, you will never get rich if you will totally depend on your downline's performance. You also have to exert effort to generate personal sales. After all, no sale will be made if everybody is expecting everybody else to do the selling.
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