Multi level marketing is the combination of franchise and direct marketing. It is a business model where every salesperson is collaborating with each other. The aim is to increase sales. Profit is based on commission. These people are put into levels. Usually, there are at least seven levels. Every member, meaning the manager and their recruits, earn from the commission. They are earned from their combined efforts.
The concept of multi level marketing originally started in the 1980s. It was when companies handled the stocking and distribution issues. It was when every individual involved was compensated. Individuals saw the potential of multi level marketing. They started to be interested. They saw that as they all work harder to promote sales, they increase their chance of earning a bigger profit.
Doing multi level marketing became easier as the internet flourished. Promotion and sales became possible online. This made Multi-level marketing (MLM) so much easier.
How are you Compensated in Multi Level Marketing?
Multi level marketing has different compensation plans. These are the following:
- Uni-level or stairway breakaway plan. It has two types of distributors. You have the managers and non-managers.
- Matrix plans. It regulates the width of each level of the distributor’s group.
- Binary plans. It limits the level’s width to two legs. Commission is paid when both legs have reached their sales target.
- Elevator scheme. The distributor’s pay splits after a certain amount of units are paid.
Aside from compensation plans, there are also ways for commissions to be paid. The first manner is paying the commission only when a product is sold. The second one is paying the commission when a customer didn’t make a purchase. But, he must at least sign up. The first way is usually what legitimate businesses use. The second one is what gave rise to pyramid scamming.
Pyramid Scamming and Multi-Level Marketing
The rise of pyramid scamming called for stricter rules. They were then applied to companies using multi level marketing. The Federal Trade Commission (FDC) started to warn companies. Especially those whose commissions are based on recruits rather than sales. In 2006, FDC issued the Business Opportunity Rules. It demanded every business sellers, including MLM, to provide thorough information for their customers. This is to avoid deceptions and cult programs. These programs were motivating to hide the truth. Moreover, pyramid scamming s banned in several countries. To verify the legitimacy of multi level marketing, the 70% rule is used. Distributers can only restock when they have sold at least 70% of their inventory. This is to avoid overloading just to increase commission.
Multi level marketing has potential. But be sure of what you are getting into. Check which plan is being used. How will they pay your commission? Remember, companies that use the first manner of paying commission is more often the legitimate one. But all in all, multi level marketing is good. It ensures that everybody involved is paid. But, one must be cautious.