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Multi-level marketing is a great idea, but only a few companies get it right. A company creates a product or service, then recruits non-salaried employees as salespeople, usually called distributors.
Distributors are then encouraged to do two things: sell the MLM company’s product for a small commission per sale and recruit distributors for a piece of their commissions through a pyramid-shaped distributor network.
Also called pyramid selling or network marketing, multi-level marketing companies grow revenue by hiring and recruiting non-salaried employees referred to as distributors, influencers, consultants, salespeople, or promoters (among other names). In other words, employees generally receive compensation from performance through a pyramid-shaped compensation system.
Instead of gaining commissions on products sold, salespeople gain the highest commissions on “downline” sales, which are recruitment sales and commissions on startup costs.
In most cases, the income generated in the first year of distributing for any given MLM will not be enough to live on. It generally takes about three years to build up a big enough distributor network and make a substantial income.
MLMs that focus on recruitment commissions are more dangerous for distributors because it results in over-saturated markets and a lack of income for new influencers/salespeople. MLMs that focus on recruitment are more commonly referred to as “pyramid schemes.” The U.S. Federal Trade Commission regulates and studies MLMs to prevent the likelihood of pyramid schemes.
However, not all MLMs warrant the negative title of “pyramid scheme.”
MLMs have many different types of compensation systems. The most common are Unilevel, Breakaway, and Binary.
Every company has a unique, customized compensation plan — for those looking to become distributors, compensation plans will be a huge determining factor in whether to become a distributor for one MLM over another. Compensation plans are usually binary or pyramid-shaped.
The real selling point for MLMs is that distributors can make money in two different ways. The first is money made from commissions from direct selling to consumers. And the second way to make money with an MLM is from the commissions made from sales of distributors below you in the pyramid (these are sometimes referred to as recruits or downline distributors).
Salespeople are generally expected to sell the product for the MLM by virtue of word-of-mouth referrals. They also are expected to recruit new salespeople so they become downline distributors, generating more revenue for top-level distributors.
Here are a few signs for identifying which multi-level marketing company is best:
The term “MLM company” isn’t exactly accurate because the company is not necessarily defined by the fact that it uses a multi-level marketing structure. Instead, a good MLM will be a product-centric company, meaning that it will be, for example, a cosmetics company that uses an MLM structure. Test the product of the company you are interested in; the product must be something that you would willingly advertise even if you weren't working for the company.
Each company will have a different startup cost, which is a fee that new distributors must pay to begin distributing. Companies with high startup costs are more likely to be recruitment-centric MLMs. MLMs that focus on recruitment are generally called pyramid schemes, or schemes designed only to tie down new recruits instead of selling quality products to interested customers.
Another indicator of a good multi-level company is the company’s training quality and investment. If the company is product-centric, it will invest money into training its distributors on how to sell. If it is recruitment-centric, the company will either not bother with training or only train on how to recruit more distributors.
MLMs normally offer bonuses as an incentive to recruit and sell more. The most successful distributors can earn cash bonuses or even new cars in many cases. Another common bonus is a discount on company products. Be sure to research each MLM to discover the unique bonuses available for successful salespeople.
Each company’s compensation plan is unique to the specific company (even if it is designated as a unilevel, breakaway, or binary). It is important for potential distributors to research their targeted company's compensation plan in depth. Here are the most common compensation plan types:
Gives an equal percentage on commissions from downline sales to all qualifying distributors. The Unilevel commission structure is designed to attract recruits by steering away from rank-based commissions and toward recruitment-based commissions.
Most companies offer a hybrid unilevel commission structure, where distributors aren’t only paid a level commission on downline sales, but also other commissions like fast start commissions, infinity commissions, rank-based bonuses, and pool bonuses.
Advantages of the Unilevel commission structure:
Of course, the Unilevel commision plan will be different for every company, so the advantages and disadvantages will fluctuate according to the MLM company for which you become a distributor.
For example, doTERRA mixes Unilevel compensation with a rank bonus pool structure for leaders. Depending on your rank within the organization, you get a different number of shares within the specific pool.
With the breakaway plan, when salespeople meet their group and personal goals, they advance one step. Salespeople keep advancing and moving up the steps by reaching predetermined goals until they finally reach the top step. At this point, the individual distributor breaks away from his original sponsor’s group (no longer a downline distributor).
The breakaway compensation plan, also called the stairstep breakaway plan, is the oldest compensation plan used today. You will most likely only find the breakaway compensation plan used in older MLMs, which is both an advantage and a disadvantage.
As the breakaway plan has been used for many years, it is a proven method. However, it does lack some additional characteristics of newer plans, like the lower personal volume advantage of the unilevel compensation plan.
Each step in the breakaway plan has a different commission rate, so the higher you advance, the more commission you make. Your commission depends on meeting two goals: your personal goals and your group's goals.
It’s important to research both the lowest and the highest commission rates possible when deciding which MLM to join.
A salesperson can build his commission rate by advancing in rank/steps and by recruiting new distributors. Consider the commission rate of 10 percent if you were on the third step. If you recruit three distributors who meet their goals and earn the commission of 6 percent, then you earn something called differential commission, which is the difference between your commission and the commission of your recruits (an extra 4 percent). This way, your commission is tied to the group’s commission as well, ensuring a group effort when recruiting and selling.
If you recruit a distributor who advances to the final step and breaks away from your group, what happens to your commissions? Yes, your total group volume will take a hit, because you’ve lost one of your best recruits. However, most companies will provide you with a bonus commission, referred to as an override commission, for creating breakaway legs (or recruits that end up breaking away, forming their own group).
Advantages of the stairstep breakaway compensation plan:
Disadvantages of the breakaway compensation plan:
The main attraction of the binary plan is that distributors are only required two downline recruits. Why is this a good thing? Because once you recruit more than two distributors and these excess distributors are placed below your downline, you can start earning commissions; this is a much lower recruitment requirement than other compensation plans.
The binary compensation plan has recently gained popularity because of its simplicity and the growth opportunities involved. Unfortunately, the plan has been so misused that it has been hit with many state and federal regulations. Government actions against such companies have been very public, resulting in bad press for the companies and a bad reputation for MLMs using the binary compensation plan.
The binary plan has one main limitation — whether it’s a company requirement or a federal regulation, distributors are required to balance the sales of their two downline distributors, so that the total sales from each meet a predetermined percentage.
Advantages of the binary compensation plan:
Disadvantages of the binary compensation plan:
MLMs are difficult to compare to one another when looking at the product or service offered, simply because the MLM industry has a huge variety of products and services. It’s easier to look at the differences in compensation plans, rates, bonuses, and training programs when searching for a good MLM to join.
Here are just a few of the many different types of MLMs we rank and review:
MLMs are successful because they provide tempting possibilities — the more you recruit, the more you sell, and the more you make. The possibility for income seems almost endless. However, only a few companies can make this dream a reality. So how do you spot the good ones from the bad ones? Look at the product. If the company has put time and money into creating a valuable product, they will put time and money into selling it.
As a potential distributor, you should test products before joining any MLM. And as a general rule of thumb, don’t join an MLM if you aren’t an avid fan of its product or service.
Recruitment is an integral part of any MLM, but it doesn’t need to be the focus. Whenever MLMs charge high startup fees, require high recruitment for a commission, do not provide sales training, or otherwise value recruitment over product, that’s a clue that it is not a good MLM to join. Network marketing companies should rely on networks to sell products, instead of only recruiting your network.
A company that cares more about recruitment than it does about selling products will not invest much in training resources for its distributors. Pyramid schemes are designated as such by their focus on leveraging your network to buy their products through recruitment, under the guise of “startup costs” and “startup packages.” Extensive training programs that focus on teaching you how to sell products instead of how to recruit more will be an important clue in your research.
Don’t just focus on the glowing reviews from distributors who are making $50,000 per month. You should also pay close attention to those people who never made any money and gave up after a few short months. Why did they give up? What are the common complaints from unsuccessful distributors? Answer these questions to gain insights into the MLM you’re considering.
Network marketing companies, MLMs, and referral marketing companies that have been around longer are more trustworthy. Why is that? Government regulations on MLMS have increased in severity and frequency over the years. Companies that have survived such regulations will also have to have survived the threat of lawsuits, bad publicity, and negative feedback from unsatisfied distributors — not many companies would be able to survive this. A bad MLM company that is still around and has been sued, reviewed, and regulated will have extremely negative reviews and publicity surrounding it.
The decision will ultimately come down to which company sells your favorite product and which fits your lifestyle best, but we’ve put together a list of some of the most popular. Forever Living, Shaklee, and doTerra are just a few of the best MLMs to join in 2019. Both customer and distributor reviews reveal an abiding trust in these companies.
A downline distributor is a recruited distributor from whom the sponsor (the one who recruited them) gains commissions. Every compensation plan involves recruiting other distributors to help sell the company’s product. Some compensation plans provide higher commissions for recruiting successful distributors (quality over quantity). Other plans only focus on simply hiring more distributors (quantity over quality). Overall, downline distributors help sponsors gain extra commissions.
If you are a team player and like to work alongside other people to achieve your goals, you will likely do better with the binary compensation plan because of its focus on building depth within your organization.
If you do better on your own, you are more likely to excel with the unilevel compensation plan, which rewards each individual salesperson for their own efforts.
People generally tend to prefer either the unilevel or the binary compensation plans. But, the breakaway compensation plan also has benefits of its own. With the breakaway compensation plan, creating breakaway legs offers more of an opportunity to build passive income. Ultimately, which compensation plan is best is up to where you think your strengths will help you excel most.
Multi-level marketing companies are dangerous for those who aren’t suited to sell products — it’s important to know how to tell the good MLMs from the bad ones. It can also be a risk for those who are already financially unstable because there is a certain level of time and investment required to be successful in an MLM.
Here are a few questions you should consider answering to know whether you should join an MLM company (if you answer yes to these questions, then you’re well-suited for an MLM):
Multi-level marketing companies are not required to release information about the average income of distributors in the United States. However, some MLMs do release this information in what is called an income disclosure statement. If you would like to see the amount of income gained by distributors on average for a specific MLM, search the company’s name in Google + “income disclosure statement.”
The main difference is that a legitimate multi-level marketing structure will focus on selling great products instead of focusing on recruiting.
Direct sales companies have participants sell a product or products directly to their target market. MLM distributors not only sell products to consumers but also receive commission from recruiting other participants.
MLM companies have direct selling opportunity, but direct sales companies do not have MLM opportunity.
Direct selling began in the nineteenth century with door-to-door sales agents and with representatives distributing products to rural communities. Companies later introduced the recruitment incentive that began multi-level marketing.