Multi-Level Marketing (MLM), also known as Network Marketing
There are two types:
Subscription or Money Plans and Product Based MLM.
Subscription or Money Plans
Subscription or Money plans are generally illegal and are not really Network Marketing or MLM.
The promoters often call them that to give themselves some credibility They generally work by getting you to pay a subscription. Most of which the person or company running the plan gets and pay a percentage out to the person who introduced you to the plan. You then go out and recruit as many people as you can so that you will get as much commission as possible. There is generally no product or service offered, or if there is it is generally worthless and just incidental. These plans are illegal, although are still often appearing on the doormat, coming in from countries out with the UK.
Often the commission paid out will be on a matrix plan; for example where you only need to sponsor, say two on your first level and then get those two to sponsor 2 so that you now have 4 on your 2nd level and then those 4 just sponsor 2 each which gives you 8 on your 3rd level and so on. So that in theory you will have 64, 128 or 256 people all in your network giving you money, They will even show you a graph showing exponential growth. Generally companies don’t pay out unless a level is full and of course that’s where it all falls down because people drop out or do not sponsor someone and you finish up with holes in your useless matrix. These plans, again are now illegal in the UK but are still coming in from abroad or being pushed on internet sites.
Why they fail
These plans ALWAYS FAIL. Usually the company running the plan make a killing and then mysteriously vanishes! The people who were in at the start made a killing and everyone else lost a fortune. In fact the Department of Trade and Industry (DTI) closed down a few of these schemes in 1996. And the law changed so that in 1997 most of these schemes become illegal. However, as I have already noted, British law cannot have jurisdiction over what comes in from abroad and as we all know the Internet is virtually impossible to police. I do remember that I got made redundant in the early 90′s, although I myself never got involved, had a friend who had his own farm, and being in small financial difficulties himself. Really believing that these plans were brilliant, put everything he had into one and when it went down he even lost his farm. It was very tragic.
They can be made to look brilliant on paper especially with glossy brochures promising cars or holidays at certain levels. Don’t get involved. It will cost you a fortune that can easily run into hundreds and even thousands of pounds. This can be a very expensive way of learning.
Product Based MLM or Network Marketing is generally credible but be warned it is not easy. Generally most people get introduced to it by a colleague, relative, friend or website. They will invite you along to an open meeting near your home. Go, you have nothing to lose but what ever you do, leave your cheque book, credit cards and most of your cash at home and DO NOT SIGN ANYTHING that night. Take your partner with you because you will normally see something that will really get you all fired up, full of inspiration, “I can make a fortune at this!” When you get home, if you had left your partner at home they would not have seen the presentation and would be very suspicious and dead against it. So go along together.
When you get to the meeting, usually in a local pub, hotel or meeting rooms. You will be introduced to your host by your friend or colleague who invited you. You will see lots of people all dressed up in business dress who are already distributors or agents and a few other people who perhaps look a bit nervous. These are people like you who are along for the first time. You will often be shown a very compelling company DVD video presentation, which will show lots of fast cars, big houses, deserted beaches and the like and/or you will be given a ‘Power Point’ presentation by the host. There will normally be an interval for tea or coffee and you will be shown the actual products and someone will explain how great they are, how everybody wants them, and how easy they are to sell. Then afterwards, someone will show the profit or reward plan, sometimes hand writing it on a white board, as they explains, but more often now, given as a ‘Power Point’ presentation. This will leave you absolutely, gob smacked! About how easy it all is and how by this time next week you will be a millionaire! How can you fail? You will want to sign up there and then and buy as much product, company leaflets and training material as you can carry. But you can’t tonight, can you? You’ve left your cards and money at home!
The hype or Ra Ra!
You will have been carried away by all the enthusiasm of the people there and the hype of the DVD video’s and other presentations and all the Razzmatazz that they could muster. That’s why I said leave your cheque book, cards and money at home. That way you cannot sign up tonight. Go home and think about it. There will be an answer for that: “Why do you want to think about it?”, “What is there to think about? You’ve seen it all here”, “You like the plan don’t you?”, ” You like the product(s) don’t you?”,”You like us don’t you?”, “Then what is there to think about?” You do not want to do anything tonight. You want to talk it all over with your partner to discuss the implications in the cold light of day and anyway, if you were to do anything you would need to formulate a plan of action first and in any case you have no money on you.
You will be led to believe that it is easy and that you will very easily become a millionaire in no time at all. Nonsense! Although many people have done it especially in the USA where more millionaires have done it through MLM than any other means, well, until the internet came along, now I’m not quite so sure! It has also been done here in the UK and Europe. The UK is probably one of the most difficult countries because generally the British are a bit stick in the mud and afraid to try something new. Our continental cousins in Europe generally are more open to this type of marketing as are the Americans, Canadians, Australians and New Zealanders. These days, even the Chinese.
If you like what you have seen and you like the product and feel that you get on with the people who presented the meeting and especially the person that took you along then by all means after reading the rest of this then go for it. BUT if you feel that you do not like the product or the people who presented the meeting or the person who took you along then forget it. It is very unlikely that if you are new to the game, that you would have any chance of success without their help.
In the UK, there is a regulating body to which any reputable MLM company should be a member although in all fairness it will often take a new company sometime before it achieves this. The regulating body is called the Direct Selling Agency, usually just referred to as the DSA.
How Money Is Made In MLM
Why does it work for some and not for others?
A MLM company works much the same as any other in the fact that it makes or supplies a product that it wants to sell to consumers, anyone. The way it does it is by using its sales force to do the marketing for them. It keeps its costs down because generally it does not advertise it’s products, it does not need shops or fancy showrooms and apart from it’s head office and distribution warehouses, drivers and support staff, needs no other staff.
To become part of it’s sales force you have to become what they usually refer to as an agent or distributor. For this privilege it will normally cost anything between 45 and 200. 200 is currently the maximum set down by the DSA. This will normally provide you with a company training manual and operating procedures and a few samples of sales brochures, DVD’s and stationery. Now the general idea of network marketing is to get a lot of people retailing a little or in the case of one of the most well known organisations, getting a lot of people to retail a little but also to use all the consumables themselves. It is also sometimes possible to treat the business purely as a retailing opportunity. In fact for over two years I retailed just one of the product range from one MLM company as my sole source of income. This, however is not, really what it is all about.
As an agent or distributor for your chosen company you will be a retailer and as such will purchase at wholesale and sell to your customers at retail. The difference being your profit less your tax liabilities and business expenses. As any retailer, you will normally get a bigger discount if you buy in bulk. This is the same with most MLM companies. As a small retailer they know that you cannot buy in bulk, so they normally split up their year into months or sales periods and calculate what product you ordered in that period, add it all up and provided that it was over certain thresholds laid down by them, they will then give your discount in the form of a credit or rebate cheque at the month or period end.
Most people when they go into MLM will only start it on a part time basis and so will often not qualify for the bigger discounts. So why do it? Usually the business plan will have been explained to you at a meeting before your signed up so you will then have a very brief understanding of your companies volume profit, rebate, commission or compensation plan. They all seem to have a different name for it. Basically though, they all have a similar format. It is based on the principal that you personally can only sell so much, in a day or week or month or whatever.
So why not duplicate yourself to increase your turnover? That means recruiting other people and teaching them to do, what you do. This is something that your sponsor, who is the person that introduced you to the business, is, or should be, doing with you. This means that by introducing other people to your group, you can effectively increase your groups sales. As the head of your group you will then get rebates or bonuses on what you and your group has achieved. This gives you an incentive to increase your group and to train and assist them. This will increase the group of your sponsor, increasing their income, which is why they should be helping you. This will of course be increasing the sales force of the company, who also will be training all their agents by updating and producing much training material. In my experience, very few, if any, companies will actually teach you how to sell. They will train you on all the products that they supply and even train you on how to recruit other people and generally, that’s it.
So, why do most people usually fail?
Selling is a thing that we all do, all the time without realising it. We recommend films, restaurants, good offers at the local DIY store and many other things. However ask most people to sell something to another person and they will be terrified! Any company, whether supplying a product or service cannot survive without selling anything. If no product moves, then no money moves! It’s as simple as that.
If you are good at something and only have so many hours to do it, then why not teach other people to do what you do and then get a commission on what they do, because you taught them. That’s where it all generally all falls apart! Why? Because the person teaching other people what to do, generally has not got a clue what to do themselves. So they, as incompetent people are trying to teach other people how to become competent. An impossible equation! They may be great at recruiting new people but if you don’t sell anything then nobody makes any money and what’s the point?
Only duplicate something that works!
The first rule in MLM is to know how to sell! If you yourself cannot shift product, how on earth are you going to teach someone else how to do it! So learn or be prepared to learn how to sell. If You cannot or will not then forget it; because, if You cannot make money, then how on earth how are going to teach someone else to?
There is one company in MLM that uses catalogues to sell its wares and agents drop catalogues off through peoples doors and go back a few days later for orders. This is a great way to recruit people who don’t need to sell, the catalogue does it for them. Many people have been very successful with this company but be warned, because of the nature of dropping catalogues through doors and as there are no designated areas then it is quite common to go back for your catalogue to find the householder holding up two or three and saying which one is yours as other agents had also put their catalogues through the same doors that you did. This can have a very de-motivational effect on a new agent. Unfortunately this can cause a constant demand on you having to re-recruit because people have easily given up.
The 80 – 20 Rule
In fact there is a rule used in MLM, as also is, in many organisations, and that is the 80/20 rule. Simply, what that means, is that one year down the road 80% of your recruits will be gone and another year down the road 80% of what was left has now gone, so you must be prepared to put a lot of work in, recruiting, training and motivating people and training them to do the same to the people that they recruit. To become a success you will normally be talking about a 5 to 6 year plan and be prepared to put in a lot of work and travelling to recruit, train and motivate people.
Advantages of MLM
Advantages with MLM are that you have like a franchise without having to pay out that big franchise fee. You can use the corporate identity although most will insist that you must always state that you are an independent distributor or agent and not part of the corporate team. You will normally get all of your stationary, like order forms and invoices etc. You will also have available promotional DVD’s, product DVD’s, product leaflets or brochures and generally a large quantity of sales aids. A lot of companies, but definitely not all will have promotions and offers to help you sell. As your company has produced all this stationary, training DVD’s and other materials for you. Generally although not cheap, will work out a lot less than you would pay someone else to take the photo’s, design a leaflet or brochure, set up a production run and print them. Remember that your company will have covered these costs, so don’t gripe if they are not exactly giving away their promotional material. Remember, after all, it is your business.
Often these companies will also give you credit so that you can order and then pay when the invoice arrives which is hopefully when you have collected your customers payments. If you do not have this facility then get a credit card and you will never have cash flow problems. In fact, I run two credit cards, one solely for business use and one for my own personal use. Provided that you use a credit card wisely, you actually have extra rights under the 1974 Consumer Credit Act. Provided that you carefully checked the terms when opening your credit card account, then you will never incur expenses if you pay off the full amount before the final ‘pay by’ date. You should be able to achieve this if you are running your business correctly.
This article was taken from my FREE eBook: “So… You Want To Work For Yourself!” written by me, James Tallett.
First Class Hut is a site designed for the new internet entrepreneur who is looking for ideas, training, articles and opportunities to do with running your own business and with the emphasis on internet opportunities.
The owner and webmaster of the site James Tallett is also an article writer who has written many articles about running your own internet business, on the First Class Hut site and many Article and Blog sites.