Multilevel marketing (MLM), also called pyramid selling, network marketing, and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
How does MLM system work?
The multi-level marketing system is a business model in which a company markets products through a network of distributors. The distributors are also responsible for recruiting new distributors, and they receive a commission on the sales of the products that they sell as well as on the sales of the distributors that they recruit.
This structure allows for exponential growth in the number of distributors and, as a result, in the number of products that are sold.
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The MLM system is also sometimes referred to as a pyramid scheme, and there are some similarities between the two. However, there are also some important differences. In a pyramid scheme, there is no product being sold, and the only way to make money is by recruiting new members into the scheme.
With an MLM system, there is a product or service being offered, and participants can earn commissions not only on their own sales but also on the sales of the distributors that they recruit.
What are the benefits of MLM system?
Multi-level marketing (MLM) is a type of business model in which a company sells products or services through a network of distributors. These distributors are typically independent contractors who receive commissions for the products they sell.
The MLM system can be an effective way to sell products or services, but it has some potential drawbacks. For example, distributors may be incentivized to focus more on recruitment than selling, and the system may encourage pyramid schemes.
What are the drawbacks of MLM system?
Multi-level marketing (MLM), also called pyramid selling, is a controversial marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
There are several drawbacks of MLMs, which include:
- high initial investment required (i.e. you have to purchase a starter kit or inventory);
- risk of recruitment may be low (i.e. you may not make much money if you don’t recruit others);
- pyramid scheme laws may apply in some jurisdictions; and
- products may be overpriced.