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The Concept Behind Multi Level Marketing

Jul 23, 2008
Multi-level marketing or MLM is a popular form of business structure. Basically, this type of business is associated with direct selling, but it is actually more than that. Most multi-level marketing activities include recruiting members, selling, and earning commissions on whatever sales the person under you transacts. Also, it follows the concept of franchise companies in the sense that multi-level marketing would pay some kind of a royalty fee to an individual based on the sales he has been able to achieve in his particular area or based on the sales of the group he manages.

Most multi-level marketing companies would not pay based on the amount of people you recruit itself because it would constitute as a pyramid scam. Rather, they pay you based on the amount of sales you had been able to generate and the amount of sales that your recruits had been able to make. That is not to say that you would not receive a bonus when you recruit because you will most likely will but it is very important to discern whether the money you would receive actually came from the company's earning based on its performance or the money they had received from the person you had bought into the company. If it did come from the person in your downline, then the company is most likely illegitimate and it is bound to collapse sooner or later when it is not able to sustain the amount of recruits it needs to remain afloat.

There are some multi-level marketing companies that got around this though and their usual strategy is to lure new recruits into buying products or even services they offer at a high cost but with an opportunity to enter their company attached. When a particular MLM company uses type of operation then it is most likely also illegitimate because the cost they had paid for the products is not sustainable and people outside that company would not be willing to purchase a product at that high price. When this happens then it is safe to arrive at the conclusion that it was a pyramid scheme albeit with some products that was sold.

Multi-level marketing also has varied compensation plans for its members depending on the policy of the particular company you want to enter. One of the most widely used structures is the unilevel plan. This is actually the first type of compensation plan that was introduced and it retains its popularity up to now because it gives a lot of possible income to its members so it is the most attractive type to lure in more distributors of your products.

On the other hand, there is also the matrix plan. In using this particular type of model to give compensation, an MLM company limits the amount of recruits a particular individual can recruit, but that is not to say that a diligent member would not benefit at all from his efforts in promoting the company because there are various ways to get around this and one is called the spillover. Basically, this will allow the diligent members to give up their recruits to other people that is still under them, thus more people will benefit although the diligent individual himself will not get as much commissions as he could have since some of the commissions already went to his previous recruit. But it is really not at all bad because people do get attracted to this type of model as they have the chance to earn commissions through the effort of others.
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