What is Multi-Level Marketing?

Multi-level marketing is sometimes known as network marketing and is often abbreviated as MLM. This is a kind of business where franchising and direct selling are combined. This business makes a person associated to a company in an independent transaction approach. It is an approach where the company creates a contactor relationship to the person who wants to expand his business.

The members make their earnings based on the sales they have reached in that particular product or service. It also includes the sales of the person that they have recruited to join the business. Most of the time the individual who has recruited more members and provided a good sales output on the product compensate higher because of the effort to transact in two different fields.

There are “pyramid schemes” or Ponzi schemes, which are considered illegal. Most people associate multi-level marketing to these kinds of schemes because they also recognize themselves to be a legitimate networking business. Because of the bad image brought up by these schemes, many prefer to use their names for their businesses as “home based business franchising” or “affiliate marketing”.

Commissions are earned in the process of selling a particular product or service in a legitimate network marketing. There can be no earnings in what they call as a “sign up fee” or for just recruiting yourself alone. This kind of marketing is always criticized because of the questionable recruitment process where they get their revenue and profit. They get their sales from members and new members, which are considered the end users of the product and as the distributors.

These criticisms led to the major changes in the multi-level marketing in the early 1980s when many companies have started to allow their members to concentrate only on marketing and not on distributing or stocking the product. Most multi level marketing firms nowadays perform as fulfillment firms by taking the tasks of shipping the product, paying the commissions and taking orders from their clients.

Another change that has taken place is “selling” or “re-selling” of products. Most multi-level marketing companies now are based on “consumption” of the products rather than “selling” them. As a result, old time things like a garage full of products you can’t sell are for the most part a thing of the past.

If you still don’t understand multi-level marketing, or you understand it but don’t believe in it, think about this. When you go to the grocery store and buy a gallon of milk, you are participating in a multi-level marketing system. At the top is the farmer who has the cows. The next level is delivering the milk to the processor. Then you have the processor and those who get it to the distributors. Then the distributors deliver the milk to the grocery store where you, the consumer, make the purchase. That is at least 6-7 levels and they all make money on that gallon of milk except you, the final consumer.

There are thousands of products sold through multi-level marketing and there are some 2 million multi-level marketing companies doing many millions of dollars’ worth of business. They are a great tool to start your home based business if that is your goal.