What Does MLM Mean – The Business Model

What Does “MLM” Really Mean? A Quick Overview of The MLM Business Model

Perhaps you’ve heard people using the term “MLM” during a casual conversation? Have you grown curious about this type of business model? Today some of the world’s most successful corporations have embraced this basic plan. Some universities in the United States and the UK even conduct courses devoted to this form of marketing.

What Does MLM Stand For?

First, let’s consider the abbreviation “MLM”. What does MLM mean? The MLM definition remains quite straightforward: it stands for “multi-level marketing”. Sales organizations using this model usually offer compensation on several levels within the organization. Successful sales team leaders generally receive money by selling products (or services) to customers, and they also obtain a percentage commission on the total sales generated by people they have sponsored into their sales organization.

Distinguishing Legal (And Illegal) Business Models

One important issue merits attention. Properly organized MLM sales do not constitute illegal pyramid schemes. In the past, consumers sometimes confused the MLM meaning of a “multi-level” compensation plan with illicit sales pyramids. While both types of organizations often emphasize recruiting new sales associates, a crucial difference exists between them. Legal MLM plans always base the compensation of sales executives solely upon the sale of legitimate goods or services. They never compensate members simply for recruiting sales team members.

About Multiple “Tiers”

An illegal “pyramid scheme” pays members solely on the basis of recruiting, not for sales. For this reason, these “endless chain” schemes ultimately fail. By contrast, while MLM organizations often do form “tiers” for compensation purposes, they permit new recruits to earn potentially as much money as senior-level executives if they sell a comparable quantity of products. In other words, upward mobility should exist within the organization.

MLM Compensation: Potentially Lucrative

Today, many “self-made” millionaires owe their personal fortunes to astute MLM marketing. From early MLM leaders like Amway and Shaklee, to more recent enterprises (e.g. Herbalife, Jeunnesse, Isogenix, Forever Living, Arbonne International, Avon, and Utility Warehouse), successful enterprises using the MLM model have helped create large numbers of well-compensated business leaders. While many recruits won’t succeed in building large sales organizations, a certain percentage must do so in order for the MLM to prosper. Read more about this topic here.

Word-of-Mouth Advertising

One key to the remarkable success of the MLM business model rests upon “word-of-mouth advertising”. This happens when one person enthusiastically recommends a product (or a service) to someone else. The person hearing the recommendation may know nothing about the sales company, but they do trust the referral source and so feel inclined to consider making a purchase. Although numerous businesses utilize this phenomenon when they launch social media campaigns, MLM companies frequently rely solely upon word-of-mouth. Even MLM firms with comparatively limited startup capital sometimes expand in size rapidly as a result, e.g. here.

Quality Products Matter

The successful reliance upon word-of-mouth typically requires MLM firms to offer very high quality merchandise or services. Indeed, MLM sales organizations fare best when they offer goods meeting two criteria: (1) exceptional quality, and (2) consumable in nature. See more about branding here. The typical MLM customer makes an initial purchase after receiving a word-of-mouth referral, but soon becomes a loyal repeat buyer due to satisfaction with the brand.

Further Information

Consider contacting Mike Sheffield, an MLM consulting company expert, for further information about the multi-level marketing business model. Today, a growing number of competitive enterprises have discovered benefits in embracing the MLM paradigm. It has enabled some small startups to become household names quite rapidly!




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