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What is mlm company?

4 Answer(s) Available
Answer # 1 #

MLM companies sell their products or services through person-to-person sales. That means you’re selling directly to other people, maybe from your home, a customer’s home, or online.

If you join an MLM program, the company may refer to you as an independent “distributor,” “participant,” or “contractor.” Most MLMs say you can make money two ways:

Your recruits, the people they recruit, and so on, become your sales network, or “downline.” If the MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.

Most people who join legitimate MLMs make little or no money. Some of them lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.

Pyramid schemes are scams. They can look remarkably like legitimate MLM business opportunities and often sell actual products, maybe even ones you've heard of. But if you become a distributor for a pyramid scheme, it can cost you and your recruits — often your family and friends — a lot of time and money that you won’t get back.

The promoters of a pyramid scheme may try to recruit you with pitches about what you’ll earn. They may say you can change your life — quit your job and even get rich — by selling the company’s products. That’s a lie. Your income would be based mostly on how many people you recruit, not how much product you sell. Pyramid schemes are set up to encourage everyone to keep recruiting people to keep a constant stream of new distributors — and their money — flowing into the business.

Often in a pyramid scheme, you’ll be encouraged or even required to buy a certain amount of product at regular intervals, even if you already have more inventory than you can use or sell.

You may even have to buy products before you’re eligible to be paid or get certain bonuses. You also may have to pay repeated fees for other items, like training sessions or expensive marketing materials. In addition, the company may say you can earn lavish rewards, like prizes, bonuses, exotic vacations, and luxury cars. However, it often turns out that you have to meet certain product purchase, recruitment, training, or other goals to qualify for the rewards, and only a handful of distributors ever qualify.

Eventually, most distributors find that no matter how hard they work, they can’t sell enough inventory or recruit enough people to make money. They also can’t keep up with required fees or the inventory purchases they need to make to qualify for rewards, and they can’t earn enough money to cover their expenses. In the end, most people run out of money, have to quit, and lose everything they invested.

Here are some warning signs of a pyramid scheme:

If you’re considering joining an MLM, know that some MLMs — even ones that aren’t pyramid schemes — may not be a wise investment. Other MLMs may not be a good fit for your interests and lifestyle. Here are some ways to help protect yourself against a bad MLM experience.

Ask tough questions and dig for details. Don’t consider it nosy or intrusive. You’re thinking about starting a small business. A good businessperson needs those answers. Here are some questions to ask:

Brea Beudant
Chief Web Officer
Answer # 2 #

MLM companies tend to appeal to new recruits with promises of wealth and independence. While not illegal by definition, many MLMs have become infamous for their controversial business practices—and others have been revealed to be little more than illegal pyramid schemes.

Multi-level marketing companies use people instead of retail outlets to sell their products to customers. This puts the responsibility for selling into the hands of independent distributor networks.

Under the MLM model, distributors are not employees of the company. Instead, they’re individual business owners who recruit their own distributor networks to help them sell products. Multi-level marketing firms rely upon this extended network of independent distributors to generate revenue.

To understand how MLM works, think of a pyramid. In our example, Alice is the first independent distributor hired directly by Direct Marketing Company. Alice becomes the top of the pyramid.

Alice recruits five independent distributors, who each turn around and recruit five more independent distributors, and so on. This fills out the pyramid that Direct Marketing Company relies upon to sell its products.

Alice is the sponsor, or upline, of everyone she recruits. The people she recruits (as well as all the people they recruit) become her downline.

The directions of these relationships are important to keep in mind because they impact the money everyone in the pyramid earns in most multi-level marketing schemes. All distributors pay a portion of their earnings to the company as well as to those upline of them.

“MLM distributors earn money from selling products to people they know, commissions from each person they recruit to the company and commissions from the sales and recruits generated from their own recruits, continuing down multiple levels,” says Christine Alemany, CEO of TBGA, a branding and marketing support agency. “In order to succeed, a distributor must continuously recruit as many downlines as possible to join their team.”

Typically MLMs offer a detailed compensation plan that outlines precisely how these upline and downline relationships work and how distributors get paid. These plans spell out things like recruiting and sales commissions as well as define the requirements a member must meet to be eligible for compensation, usually expressed in minimum sales targets and numbers of new recruits.

It’s understandable if the dynamic of MLM companies has you questioning if they’re little more than pyramid schemes. Both, after all, operate with the same pyramid-shaped structure.

So what makes one legitimate and the other an illegal scam? It comes down to the sales versus recruitment focus in the compensation plan.

According to the Federal Trade Commission (FTC), “if an MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.” Pyramid schemes, meanwhile, rely on continuous recruitment of dues-paying members to stay afloat, even if they require members to keep buying products that they may not be able to sell.

For an MLM to be compliant (i.e., legal and not a pyramid scheme), it must adhere to the 70% rule that “at least 70% of all goods sold must be purchased by non-distributors.”

That means consumers outside the company need to be buying the majority of a company’s products—rather than downstream in the distributor network or with the distributors themselves stocking up on inventory. But it’s incredibly hard to prove if an MLM isn’t in compliance, note Alemany and Cory Rusin, a researcher who works closely with former multi-level marketing distributors after they leave direct sales.

“It’s almost impossible to track if a distributor has stashed unsold products in their garage or closet,” says Alemany. “For the most part, MLMs take their distributors at their word.”

And even if a distributor were clearing 70% of their inventory in a given month, the “financial freedom” offered by many MLMs simply cannot be achieved through direct sales alone, says Rusin.

“When you analyze the compensation plans of MLMs, the real money is made through recruitment,” she says.

A pyramid scheme fails when its recruitment efforts fail since the model requires infinite recruitment to sustain income. MLM companies typically fail when suppliers or distributors revolt against unethical business practices, as in the recent LuLaRoe scandal, though individual distributors may struggle within a MLM without it outright collapsing for some time.

In short, vendors have sued LuLaRoe for unpaid invoices, and the company has been embroiled in a class-action suit from customers who received defective merchandise. The company recently settled a suit with the state of Washington, which had sued the company for running an illegal pyramid scheme.

On the surface, multi-level marketing companies may appear to be a great way for individuals to become “captains of their own ship” as business owners, creating revenue from products they believe in.

But the truth is that 99% of people who participate in MLMs lose money, according to the Consumer Awareness Institute, as they struggle to resell products and recruit members for network marketing companies that often tiptoe the edges of illegality and hide the true costs of participation from participants.

What’s more, the tactics used by some MLMs can take a psychological—as well as financial—toll on distributors.

“Dr. Steve Hassan, a leading cult expert, has addressed how MLMs use manipulation and blame to ensure any failures to earn large sums of cash through the business model are placed on distributors for their lack of competence or hard work,” says Rusin.

Rather than turning to an MLM, Rusin, a former distributor for two different MLMs, advises you to think about why you think an MLM sounds exciting and explore other opportunities to fulfill those values.

Whether it’s money, wanting to quit your day job or work from home or seeking a sense of community, there are plenty of opportunities that offer those exact experiences without the hefty financial investment and psychological cost an MLM can have.

“Start your own business by exploring what your strengths are and how you can provide a needed service to others,” Rusin says. “There are inexpensive ways to get started and you’ll have created a much more sustainable and ethical avenue of income.”

Win Kaits
Answer # 3 #

Multi-level marketing (MLM), also called network marketing or pyramid selling, is a controversial marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling the company's products or services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.

In multi-level marketing, the compensation plan usually pays out to participants from two potential revenue streams. The first is based on a sales commission from directly selling the product or service; the second is paid out from commissions based upon the wholesale purchases made by other sellers whom the participant has recruited to also sell product. In the organizational hierarchy of MLM companies, recruited participants (as well as those whom the recruit recruits) are referred to as one's downline 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 more importantly they are incentivized to recruit others to join the company's distribution chain as fellow salespeople so that these can become downline distributors. According to a report that studied the business models of 350 MLM companies in the United States, published on the Federal Trade Commission's website, at least 99% of people who join MLM companies lose money. Nonetheless, MLM companies function because downline participants are encouraged to hold onto the belief that they can achieve large returns, while the statistical improbability of this is de-emphasized. MLM companies have been made illegal or otherwise strictly regulated in some jurisdictions as merely variations of the traditional pyramid scheme.

Multi-level marketing is also known as "pyramid selling", "network marketing", and "referral marketing".

Independent non-salaried participants, referred to as distributors (variously called "associates", "independent business owners", "independent agents", etc.), are authorized to distribute the company's products or services. They are awarded their own immediate retail profit from customers plus commission from the company, not downlines, through a multi-level marketing compensation plan, which is based upon the volume of products sold through their own sales efforts as well as that of their downline organization.

Independent distributors develop their organizations by either building an active consumer network, who buy direct from the company, or by recruiting a downline of independent distributors who also build a consumer network base, thereby expanding the overall organization.

The combined number of recruits from these cycles are the sales force which is referred to as the salesperson's "downline". This "downline" is the pyramid in MLM's multiple-level structure of compensation.

The overwhelming majority of MLM participants participate at either an insignificant or nil net profit. A study of 27 MLM schemes found that on average, 99.6% of participants lost money. Indeed, the largest proportion of participants must operate at a net loss (after expenses are deducted) so that the few individuals in the uppermost level of the MLM pyramid can derive their significant earnings. Said earnings are then emphasized by the MLM company to all other participants to encourage their continued participation at a continuing financial loss.

Many MLM companies generate billions of dollars in annual revenue and hundreds of millions of dollars in annual profit. However, profits accrue to the detriment of the majority of the company's constituent workforce (the MLM participants). Only some of the profits are then shared with individual participants at the top of the MLM distributorship pyramid. The earnings of those top few participants are emphasized and championed at company seminars and conferences, thus creating the illusion that participants in the MLM can become financially successful. This is then advertised by the MLM company to recruit more distributors in the MLM with an unrealistic anticipation of earning margins which are in reality merely theoretical and statistically improbable.

Although an MLM company holds out those few top individual participants as evidence of how participation in the MLM could lead to success, the MLM business model depends on the failure of the overwhelming majority of all other participants, through the injecting of money from their own pockets, so that it can become the revenue and profit of the MLM company, of which the MLM company shares only a small proportion with a few individuals at the top of the MLM participant pyramid. Other than the few at the top, participants provide nothing more than their own financial loss for the company's own profit and the profit of the top few individual participants.

The main sales pitch of MLM companies to their participants and prospective participants is not the MLM company's products or services. The products or services are largely peripheral to the MLM model. Rather, the true sales pitch and emphasis is on a confidence given to participants of potential financial independence through participation in the MLM, luring with phrases like "the lifestyle you deserve" or "independent distributor". Erik German's memoir My Father's Dream documents the author's father's failures through "get-rich-quick schemes" such as Amway. The memoir illustrates the multi-level marketing sales principle known as "selling the dream".

Although the emphasis is always made on the potential of success and the positive life change that "might" or "could" (not "will" or "can") result, disclosure statements include disclaimers that they, as participants, should not rely on the earning results of other participants in the highest levels of the MLM participant pyramid as an indication of what they should expect to earn. MLM companies rarely emphasize the extreme likelihood of failure, or the extreme likelihood of financial loss, from participation in MLM.

MLM companies have been made illegal in some jurisdictions as a mere variation of the traditional pyramid scheme, including in China. In jurisdictions where MLM companies have not been made illegal, many illegal pyramid schemes attempt to present themselves as MLM businesses. Given that the overwhelming majority of MLM participants cannot realistically make a net profit, let alone a significant net profit, but instead overwhelmingly operate at net losses, some sources have defined all MLM companies as a type of pyramid scheme, even if they have not been made illegal like traditional pyramid schemes through legislative statutes.

MLM companies are designed to make profit for the owners/shareholders of the company and a few individual participants at the top levels of the MLM pyramid of participants. According to the U.S. Federal Trade Commission (FTC), some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization.

Companies that use the MLM business model have been a frequent subject of criticism and lawsuits. Legal claims against MLM companies have included, among other things:

"Network marketing" and "multi-level marketing" (MLM) have been described by author Dominique Xardel as being synonymous, with it being a type of direct selling. Some sources emphasize that multi-level marketing is merely one form of direct selling, rather than being direct selling. Other terms that are sometimes used to describe multi-level marketing include "word-of-mouth marketing", "interactive distribution", and "relationship marketing". Critics have argued that the use of these and other different terms and "buzzwords" is an effort to draw distinctions between multi-level marketing and illegal Ponzi schemes, chain letters, and consumer fraud scams—where none meaningfully exist.

The Direct Selling Association (DSA), a lobbying group for the MLM industry, reported that in 1990 only 25% of DSA members used the MLM business model. By 1999, this had grown to 77.3%. By 2009, 94.2% of DSA members were using MLM, accounting for 99.6% of sellers, and 97.1% of sales. Companies such as Avon, Electrolux, Tupperware, and Kirby were all originally single-level marketing companies, using that traditional and uncontroversial direct selling business model (distinct from MLM) to sell their goods. However, they later introduced multi-level compensation plans, becoming MLM companies. The DSA has approximately 200 members while it is estimated there are over 1,000 firms using multi-level marketing in the United States alone.

The origin of multi-level marketing is often disputed, but multi-level marketing style businesses existed in the 1920s and the 1930s, such as the California Vitamin Company (later named Nutrilite) and the California Perfume Company (renamed "Avon Products").

Several sources have commented on the income level of specific MLM companies or MLM companies in general:

In 2015, the Government of Bangladesh banned all types of domestic and foreign MLM trade in Bangladesh.

Multi-level marketing (simplified Chinese: 传销; traditional Chinese: 傳銷; pinyin: chuán xiāo; lit. 'spread selling') was first introduced to mainland China by American, Taiwanese, and Japanese companies following the Chinese economic reform of 1978. This rise in multi-level marketing's popularity coincided with economic uncertainty and a new shift towards individual consumerism. Multi-level marketing was banned on the mainland by the government in 1998, citing social, economic, and taxation issues. Further regulation "Prohibition of Chuanxiao" (where MLM is a type of Chuanxiao was enacted in 2005, clause 3 of Chapter 2 of the regulation states having downlines is illegal). O'Regan wrote 'With this regulation China makes clear that while Direct Sales is permitted in the mainland, Multi-Level Marketing is not'.

MLM companies have been made illegal in China as a mere variation of the traditional pyramid scheme. MLM companies have been trying to find ways around China's prohibitions, or have been developing other methods, such as direct sales, to take their products to China through retail operations. The Direct Sales Regulations limit direct selling to cosmetics, health food, sanitary products, bodybuilding equipment and kitchen utensils, and they require Chinese or foreign companies ("FIEs") who intend to engage into direct sale business in mainland China to apply for and obtain direct selling license from the Ministry of Commerce ("MOFCOM"). In 2016, there are 73 companies, including domestic and foreign companies, that have obtained the direct selling license. Some multi-level marketing sellers have circumvented this ban by establishing addresses and bank accounts in Hong Kong, where the practice is legal, while selling and recruiting on the mainland.

It was not until August 23, 2005, that the State Council promulgated rules that dealt specifically with direct sale operation- Administration of Direct Sales (entered into effect on December 1, 2005) and the Regulations for the Prohibition of Chuanxiao (entered into effect on November 1, 2005). When direct selling is allowed, it will only be permitted under the most stringent requirements, in order to ensure the operations are not pyramid schemes, MLM, or fly-by-night operations.

MLM marketing is banned in Saudi Arabia by imposing religious fatwa nationally, for this reason MLM companies like Amway, Mary Kay, Oriflame and Herbalife sell their products by online selling method instead of MLM.

MLM businesses operate in all 50 U.S. states. Businesses may use terms such as "affiliate marketing" or "home-based business franchising". Some sources say that all MLM companies are essentially pyramid schemes, even if they are legal. Utah has been named the "unofficial world capital of multi-level marketing and direct sales companies" and is home to at least 15 major MLMs, more MLMs per capita than any other state.

The U.S. Federal Trade Commission (FTC) states: "Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors. They're actually illegal pyramid schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people—except perhaps those at the very top of the pyramid—end up empty-handed."

In a 2004 Staff Advisory letter to the Direct Selling Association, the FTC states:

The Federal Trade Commission warns "Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It's best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products."

In re Amway Corp. (1979), the Federal Trade Commission indicated that multi-level marketing was not illegal per se in the United States. However, Amway was found guilty of price fixing (by effectively requiring "independent" distributors to sell at the same fixed price) and making exaggerated income claims. The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding".

Walter J. Carl stated in a 2004 Western Journal of Communication article that "MLM organizations have been described by some as cults (Butterfield, 1985), pyramid schemes (Fitzpatrick & Reynolds, 1997), or organizations rife with misleading, deceptive, and unethical behavior (Carter, 1999), such as the questionable use of evangelical discourse to promote the business (Höpfl & Maddrell, 1996), and the exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997)". In China, volunteers working to rescue people from the schemes have been physically attacked.

MLM companies are also criticized for being unable to fulfill their promises for the majority of participants due to basic conflicts with Western cultural norms. There are even claims that the success rate for breaking even or even making money are far worse than other types of businesses: "The vast majority of MLM companies are recruiting MLM companies, in which participants must recruit aggressively to profit. Based on available data from the companies themselves, the loss rate for recruiting MLM companies is approximately 99.9%; i.e., 99.9% of participants lose money after subtracting all expenses, including purchases from the company." (By comparison, skeptic Brian Dunning points out that "only 97.14% of Las Vegas gamblers lose money .... .") In part, this is because encouraging recruits to further "recruit people to compete with " leads to "market saturation." It has also been claimed "(b)y its very nature, MLM is completely devoid of any scientific foundations."

Because of the encouraging of recruits to further recruit their competitors, some people have even gone so far as to say at best modern MLM companies are nothing more than legalized pyramid schemes with one stating "Multi-level marketing companies have become an accepted and legally sanctioned form of pyramid scheme in the United States" while another states "Multi-Level Marketing, a form of Pyramid Scheme, is not necessarily fraudulent." In October 2010 it was reported that multi-level marketing companies were being investigated by a number of state attorneys general amid allegations that salespeople were primarily paid for recruiting and that more recent recruits cannot earn anything near what early entrants do. Industry critic Robert L. FitzPatrick has called multi-level marketing "the Main Street bubble" that will eventually burst.

Many Islamic jurists and religious bodies, including Permanent Committee for Scholarly Research and Ifta of Saudi Arabia, have considered MLM trade to be prohibited (haram). They argue that MLM trade involves deceiving others into participating, and the transaction bears resemblance to both riba and gharar.

Answer # 4 #
  • Know Your Why.
  • Get Clear On What Need Your Product Or Service Is Fulfilling.
  • Identify Your Target Market.
  • Decide On A Goal.
  • Be Genuine And Ethical.
  • Don't Pester Your Friends and Family.
  • Sponsor, Don't Recruit.
  • Learn How To Market And Create An Action Plan & Strategy.
Adhyayan Peer