What Is MLM?

What is MLM?  The question seems simple enough doesn’t it?  In reality the question is simple; however, the understanding people have of this type of business is all over the map.   A quick Google search of this question will bring up a myriad of answers including such terms as:  residual income, home business, pyramid scheme and scam.   At times separating fact from fiction can seem like a daunting task indeed.   It is my hope in this blog post to give you the fundamental aspects of this business model and bring some clarity to the question of:  ”What is MLM?”

What is MLM?

what is mlm – The Direct Sales Model

Understanding what is MLM, begins with an understanding of the underlying business model.  In the case of network marketing (aka MLM) the foundation is built on a concept known as direct sales.   Direct sales is a retail sales model in which a company sells its products and services through a distribution channel made up of independent distributors or business owners.   This model has been used successfully in retail sales businesses for many years.   In a traditional brick and mortar business model, this approach is typically achieved through the company’s franchise operations.   A franchisee purchases rights to the franchise and in return is given a protected territory by the company.   Depending upon the type of retail business being established, a franchise may cost between $5,000 and $500,000.   Some franchise arrangements require an even high franchise fee.
Network marketing works on a similar principle with a few very distinct differences.    For starters, the cost to become a distributor for a typical MLM company is considerably less.  Typical distributor enrollment fees run between $50-$500.  This means that the opportunity for small business ownership becomes much more obtainable for the ordinary person.  Another difference is that most MLM companies do not have territory restrictions, which means that the business owner is able to expand their business far beyond their local territory or region.  In fact many successful MLM  business owners have been able to expand their business globally, operating in numerous countries around the world.

what is mlm – Leveraging The Efforts Of Others

In defining what is MLM, it is also important to look at the way this type of business operates.   Any retail business utilizes some variation of a sales force.  This applies to everything from automobiles to photo copiers and MLM is no different.  In an MLM business, the individual is a small business owner and the long term success or failure of their business depends upon the sales of product or service.   In a traditional direct sales model, compensation is based solely upon the efforts of the individual.  If they are actively making sales, then they are actively earning commissions; however, if they take time away or face a dry period in their activity, the income will also be affected.

In MLM, the answer to this problem is residual income.   Residual income is income that is produced indirectly through the efforts of others.   Many people would say that this is the real answer to the question of :  ”What is MLM?”  In a network marketing system, each independent business owner is given the opportunity to search out and recruit other like minded entrepreneurs to join their team.   In doing so, the small business owner is creating their own unique sales force that is actively promoting the products and services of the company.   The synergy of the team creates increased sales volume, thus creating higher commission levels for the small business owner.

The network marketing industry has developed many variations of MLM compensation  plans that allow this model to be lucrative for all who are involved.   The primary components of an MLM pay plan are direct retail commissions, indirect retail commissions and commission override bonuses.   By tapping into each element of the compensation plan, the small business owner begins to realize the full potential of residual income.   Even when the small business owner has a slow month in personal sales, they are still receiving income, because of the productivity of their team.

I hope I have answered the question of what is mlm for you.  It is important to remember that just like any other business an MLM business takes work.  If you are willing to invest the time and effort into building your business, then MLM may be the perfect fit for you.

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