What is MLM?

Multi-level marketing, more commonly known as MLM, has received a bad rap in recent years. Many people refer to MLM programs as illegitimate means of making money or scams. First off, it's essential to understand that multi-level marketing is quite different than pyramid selling.

Pyramid sales, though often confused with MLM structures, are illegal due to their inability to move a product or provide a legitimate service. A basic MLM business model is one where a sales person makes a commission as well as a smaller commission of those sales people he or she has convinced to become a salesperson for the business. A salesperson with a large sales base beneath them can make substantial money as a result of the residual commissions.

A Network of Sales

MLM businesses allow individuals independence; however, while they are in business for themselves, they are not alone. Salespeople generally purchase products wholesale from the main company. They then sell the products at retail prices; hence, making a profit.

It is essential that a MLM salesperson builds a strong network of distributors. By sharing the product or service with friends, neighbors, family and acquaintances, one is able to build a strong network with which to move more of the product. A salesperson can then sponsor a new recruit and teach them both how to sell and build a business of their own.

Advantages and Disadvantages of MLM

The two main benefits of getting into an MLM business are money and independence. Generally, you are your own boss. Once you build a solid network, you make a consistent commission on all their sales. Eventually, you can scale back on the actual selling you are doing and focus your energy on managing your network. The end result of a successful network can mean lots of dollars in your pocket while affording you the independence of your own work-from-home business. In addition to setting your own work conditions and hours, you can also run a part-time MLM business for residual income.

There are several disadvantages to getting into an MLM business. First of all, you are required to squeeze dry your current contacts. No one likes to be pressured into anything that requires money so you run the risk of alienating those family and friends you really need to get your business up and running. With so many MLMs out there, there is also danger in entering an already saturated marketplace. MLM products have generally been on the market a while, making it a tougher sell. Many MLM programs require a buy-in; you have to invest a substantial amount of money into your new business. This may end up being a complete loss since you have no way of knowing if the MLM has legs.

Before investing any money, time or energy into any MLM, it's important that you do your research. You must believe in the product you're selling or your business will never succeed. Search online for any information on the product you can find. Ask neighbors, friends and relatives for any feedback they may have heard on the MLM business. Thoroughly weigh the pros and cons before you get that checkbook out.

MLM Checklist

There are many questions you need to ask before you make any commitment to an MLM business, such as:

• Is there a potential market for this product?
• Would you buy this product?
• What is the payment structure for recruiting new salespeople?
• Is there a buy-in fee?
• Is there a sales draw before you get paid commission?
• How often will you receive paychecks?
• Can you find legitimate information on this particular MLM business?

If you feel good about the answers to all your questions, you've most likely found a solid business model. If you feel uneasy about any of the answers, it's wise to pass on this one. With so many MLM business models out there, there's no point wasting your time and money on one that could be dishonest.