A Description of What MLM is and What It Is Not - Clearing Up Misconceptions of the Industry

Due to all the consternation surrounding Multi Level Marketing (MLM) recently in various posts on the Internet, I thought it would be helpful for readers to understand what MLM is and what it is not. In this discussion, MLM and Network Marketing are used interchangeably since they are essentially the same.

Definition of What MLM Is

First, MLM is a successful business model. There are basically five ways for a company to distribute a product to customers:

* Traditional Store Front

* Direct Mail

* Phone (Telemarketing)

* Internet

* Multi Level Marketing

Each of the five methods can overlap in some way or the other. Many store front businesses for example like car dealerships now use the Internet to attract customers or make sales. And, Internet Network Marketing has become the pre-eminent model to conduct MLM in the 21st century.

A MLM (Multi Level Marketing) company is unique in that it relies on an independent sales force. Each associate gets started by either marketing the product that they believe in, just as in a traditional company. But each associate is also given the option to recruit other associates who become the associates next sales level below them.

The associate at the next level can also market the product and recruit other associates to market the product below them. Sales on levels below each associate result in a commission percentage, called an override.

The MLM company only pays commissions, not salaries; therefore, there are no limitations on the amount of:

* associates, or

* levels, or

* income

More Information on What MLM means

For a more detailed explanation of how MLM works and how it is similar to traditional business, see the outstanding presentation by Tim Sales, a highly successful MLM expert, below.

What is MLM?

Definition of What MLM is not

Many people have come to confuse MLM with illegal pyramids. The truth is, virtually every business model and government entity uses what is referred to as a "pyramid" model to establish their chain of command, establishing accountability, and for communicating important information.

Is this an "illegal pyramid?"

Illegal Pyramids

Illegal pyramids or "pyramid schemes" refer to situations where people are recruited into an "opportunity" by paying an "entry fee" of around $500.00 and then being directed to go out and find others to join and pay the "entry fee." Money brought in by those joining later is paid to those who joined sooner. As long as new money keeps coming in, the scheme works - everyone gets a piece of the action. When the money stops, those last in loose their "investment."

The problem is that the media (and many people) have confused the world of MLM and pyramids - because they can’t differentiate between them. They have lumped them into the same category, evidently thinking that anything that pays on multiple levels must be an illegal pyramid. If that were true, franchising would be a pyramid.

Do People Lose Money in Illegal Pyramids?

Yes. Let there be no doubt, illegal pyramids are vile and pernicious. And, they are rightly outlawed. But interestingly enough, people lose a lot more money in other areas than to illegal pyramids. Take a look at this informative graphic created by Tim Sales which puts money losses in perspective.

Critics are quick to condemn illegal pyramids and cast doubt on legitimate MLM companies, but rarely challenge the activities that cause the greatest losses to "investors."

Click below to learn tips and techniques from Greg Brewer on how to build a successful business using the Internet.

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