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Multi-Level Marketing Business Model
If you have spent any time online looking for ideas for an internet business you have seen a lot of different potential business opportunities. You read ads ranging from unbelievable incomes with very little effort required, to more reasonable offers that are based on growing a business. One business model that you have probably seen is multi-level marketing.
For a lot of people, the words "multi-level marketing", or MLM, automatically set off an alarm. There have been so many reports of multi-level marketing scams over the years that many people would rather avoid the opportunity than take a chance of getting ripped off. But, are all multi-level marketing businesses scams?
The first thing you need to understand is that a business model that does not work is not necessarily a "scam." Investors lose money every day by putting their money into businesses that fail, that does not mean that there was a scam involved; it was just a bad business to get involved in. It was investing in a legitimate attempt to operate a business that ultimately failed.
The Merriam-Webster dictionary defines a scam as a "a fraudulent or deceptive act or operation" (http://www.merriam-webster.com/dictionary/scam). The keys are that a scam is fraudulent or deceptive. In other words, someone has to set up the business with the intent to rip somebody off. So by that standard, not all multi-level marketing businesses are scams.
Like All Business Ventures, You Need To Examine Every Opportunity
However, that does not mean that multi-level marketing businesses are a good idea to get into. Like all business ventures, you need to examine every opportunity closely to determine if it makes sense for you to invest your time and money into it. You can't afford to buy into the hype and just blindly throw yourself into the first business opportunity that tickles your ears.
 For those that don't understand how the multi-level marketing setup works, here is a quick explanation. When you join the business, your job is to sell the "widgets" that the business offers. You also are supposed to recruit other people to help you sell those widgets. Each person you recruit is part of your "downline." You will earn a percentage of everything you sell as well as everything your downline sells.
Where it really starts to sound appealing is when you build a large, multi-level downline. If you recruit 10 people, and each of those people recruit 10 people, there are now 110 people in your sales matrix. If you earn $1 for each widget that is sold, and everybody in the matrix sells just 10 widgets per week, you will be earning $1,100 each week. If you add a third layer on, that is an additional 1,000 people, or an extra $10,000 per week that you can potentially earn.
Multi-Level Marketing Models Still Work
One thing you need to think through is whether the multi-level marketing model still works in today's marketplace. Before the internet, companies like Avon and Pampered Chef relied on a multi-level marketing structure to sell and distribute their products. The larger their sales force, the more products they could sell. These businesses relied largely on word-of-mouth marketing.
Then, along came the internet. Now one person could access a global marketplace to sell and distribute products. Building a downline is not as important because you can sell as many widgets by yourself as your entire downline could have done in the past via the web.
Problems With Multi-Level Marketing
In a way, the internet has made multi-level marketing obsolete because of the amount of competition online. In order for everyone in the sales matrix to make money, there has to be a significant markup on the products sold. If you are earning $1 for every widget sold, and your matrix has 3 levels, then there has to be a minimum of $4 markup on every widget. That makes it very hard to compete with non-MLM businesses that do not have that additional markup, and can sell their products for less money.
The final problem with multi-level marketing is that it overwhelms the market with people selling the same product to the same market. Even if your downline only has 3 layers, you are part of somebody else's downline, who is part of somebody else's downline. There is no telling how many layers exist.
Layers In The Multi-Level Marketing
 If there are just 6 layers in the multilevel marketing business, that is over 1.1-million people all trying to make money selling the same product for the same company. In reality, the number of people actively selling is not nearly that high. The dropout rate in multi-level marketing business is extremely high. Some researchers put the dropout rate as high as 98% in the first year. You have to ask yourself, "if it is such a great money making plan, why do so many people drop out?"
Whether you are looking at a multi-level marketing business, or any other business, look closely at the business model. Make sure that it is a legitimate product that there is a market willing to purchase. Then, make sure that there is not an overwhelming number of people already selling that product. If it has both of those things, you have probably found a good business to get into. Do your homework, and walk away from high pressure pitches that do not make good business sense.
Points to Keep in Mind…
- Just because the business model does not work does not make the business a scam.
- Some multi-level marketing businesses are legitimate businesses, but their business model is no longer valid due to competition on the internet.
- The internet has changed how products are sold and distributed.
- Internet marketing has reduced the need for large, multi-level sales forces.
- Multi-level compensation plans cannot sustain themselves indefinitely.
- Any business you get into should have an actual product that people are willing to spend their money on.
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