Some firms use multi-level marketing or commonly known as MLM as a distribution model to distribute their products to end users. They use sales representatives or distributors to sell their product rather than selling it through retail stores or online stores. These sales reps or distributors are not direct employees of the company, instead considered as individual business owners under a hierarchical or pyramid scheme. The multi-level side refers to every representative’s ability to recruit and train new representatives, which are known as their “downlines” to begin their own businesses. As these downlines build sales and recruit their own representatives, a percentage of their income will be contributed as a commission to the person that recruited and trained them, which are their direct uplines.
Typically, as a new recruit, you will first be invited to a meeting, talk, or event held by the MLM company. People who recruit you are usually already in the business for a while and they will then ask you to join them as their downline. The first step to be in a MLM business is to sign a contract with them. They will then train you extensively under their program for new recruits, to ensure that you will learn everything that’s to know about the business before you can go out there and close your first sales deal. You will be educated on the marketing plan, the selling concepts and methods, as well as developing your own network by recruiting others to be your downlines.
There are two main revenue streams in MLM, with the first being the money you earn through sales of the products/services you sell. Typically, you will purchase an inventory of stocks from the company and sell it. The second revenue stream in MLM is the commission on sales created by downlines. Over time, once you have dilated your network of downlines, the income you will gain from commission will overtake the income you earn from your individual sales. That is the main reason why multi-level marketing sales reps or distributors are always so keen to recruit people to join them as their downlines. To manage all the sales and your downlines, MLM distributors will usually use a malaysia mlm software to assist them with managing their sales, inventory, accounts and more.
Most people have questions about the legitimacy of a MLM business. Contrary to popular belief, it is legitimate despite having a few controversial qualities.
The Pros and Cons of Multi-Level Marketing
The MLM strategy benefits both the company and the distributors. This is because the company can gain access to a huge client base in a wide range, geographically speaking. Since distributors are known as individual business owners instead of employees, the company doesn’t have to pay them fixed salaries. This will help the company to avoid wasting sales expenses. The distributors can also work on a flexible schedule.
However, there’s a downside to MLM as the company doesn’t have enough control over its salesforce. If the distributors act without showing responsibility, it may damage the company’s reputation. Also, distributors may find themselves demotivated by the fact that, despite putting in more effort than the upper tier distributors, they will always make less money compared to the commission that the upper tier distributors earn due to the hierarchical structure of MLM companies.