Multilevel marketing (MLM), otherwise known as network marketing, is a sales structure that enables a company to have a large, efficient sales team. This is done by giving incentives to salespeople not only to sell the product, but also to recruit more salespeople.
Usually, a percentage of the commission from the recruited salespeople (also known as downlines) also goes to the recruiter. This process creates a pyramid of distributors. Products are usually sold directly to customers under this system.
Criticisms of Multilevel Marketing
This system has been criticized because of several issues that have come up in a number of MLM companies. Examples of these issues are price-fixing and high startup costs. Also, in the interest of generating more passive income, the focus has been placed on recruitment of more salespeople as opposed to generating actual sales income. The problem with this is that no real profit is generated by the company, and when additional distributors can no longer be recruited, the pyramid eventually collapses. In this case, people at the lower part of the pyramid usually end up with nothing, whereas only those in the upper rungs take all the money.
Some companies have attempted to avoid this, though, by requiring their agents to purchase and use the products offered by the company. This strategy has earned many MLM companies even more criticism, however.
How to Find a Good MLM Company
Not all MLM companies follow the same scheme, and several companies have claimed to operate using legitimate processes. It is usually safer to stick to a company which does not rely on the number of recruits, but focuses more on the distribution of an actual product.
Individuals who are interested in entering MLM companies would do well to do some research on the company first. It is important to find out more about the product and be aware of how the system works. It is also a good idea to discuss issues with other distributors and determine if the company’s business model is compatible with one’s own objectives and abilities.