When you hear about multilevel marketing, do you immediately think of a pyramid?
So, it is good to review this way of seeing the concept.
The confusion is, to a certain extent, a normal point, since illegal pyramidal practices, which in recent years have dominated the news, were advertised as network marketing, another way of referring to MLM.
But do you know the difference in multilevel marketing and pyramiding?
The best way to end this doubt is to acquire knowledge and draw your own conclusions.
In this article, you will understand why it is worth investing in multilevel marketing, while it is essential to move away from pyramids.
We will also talk about the main multilevel marketing companies in some countries and the opportunities they generate.
So, follow along!
What is multilevel marketing?
Multilevel marketing (MLM) is a remuneration model in which the reseller, in addition to participating in the profits obtained from sales made by him, is also remunerated by his network of resellers, formed from his indications to the company he represents.
Conceptualization helps to understand why MLM is also called network marketing.
Anyone who joins a brand as a seller has the option of forming different levels to receive commission for the sales of these people.
Want an example?
You joined a company and invited Jair to do the same. He, in turn, invited Nonso. That way, Jair occupies the first level below you in the network and, Nonso the second. All the people that Nonso directly invites will be part of the third level.
And the main thing: the sales of all those below you generate bonuses to your income.
It was clear?
Also in this article, when explaining how multilevel marketing works, we will bring more examples and information that will help you understand the business model.
What is it for?
This model was created by Carl Rehnborg in the United States, in the 1940s, as a way to encourage direct sales with the individual gain of commissions.
In this scenario of organizational revolution, multilevel marketing has gone through several cycles, adapted to different moments in the world economy and spread to different countries.
For you to have a notion, this model already represents 96.7% of the US $ 32.18 billion in revenue of the direct sales sector in the United States, according to data from the DSA – Direct Selling Association.
In Brazil, despite the fact that this wave has just started to form, it is already classified as the fifth largest world market in direct sales.
In 2016, it registered R $ 40.4 billion in business, according to the Brazilian Association of Direct Sales Companies (ABEVD).
The objective of the company that adopts this business model is to compensate its professional for selling the product .
The multilevel serves to keep the sales force active, encouraging resellers, in addition to selling, to attract new distributors to a company.
In a way, it is like the opportunity for a promotion, in which the salesperson becomes a leader or a sales manager, and increases his earnings.
Remember that direct selling is based on personal contact between salespeople and customers.
This happens without intermediaries. That is, there is no store that distributes products and they go directly from manufacturers to consumers.
How does multilevel marketing work?
As you may have already noticed, multilevel marketing is part of a set of channels used by manufacturers to make their products reach their consumers.
In addition to it, the other channels that perform this task are retail, other forms of direct sales and sales by catalogs or postal order.
Now let’s get down to business: after all, how does multilevel marketing work?
Basically, multilevel marketing works in the following way: the reseller negotiates his products for his normal clientele, which generates a direct profit.
At the same time, he also tries to attract new salespeople to his network, which will generate an indirect profit, through the residual commission.
In other words, everything works as a kind of network.
Family, friends and acquaintances become customers and start to invite others, becoming independent distributors.
This way, for each sale made by these independent distributors, a commission is generated for this network of people that you managed to recruit.
In short, “ marketing ” is the work to be done by those who enter this business and “multilevel” is the way in which that person will be remunerated.
When registering with a company, the interested party is in charge of building an organization through its marketing work.
This moment requires special attention.
After having your own team of resellers, you will need training, guidance, awards, in short, whatever it takes to keep this network engaged.
Salespeople assume an entrepreneurial and independent posture, controlling their own networks and businesses, but still selling and consuming the products of the original manufacturer.
Progressively, the movement of products through this hierarchical organization at various levels will generate the bonuses you will receive from the company.
Difference between pyramid and multilevel marketing
Now that you know how this model works, you may be wondering what is the difference between pyramid and MLM?
This is a very recurring question and has generated controversy regarding the concept of multilevel marketing.
This is because, as part of the profit obtained comes through the productivity of the distributors recruited by the seller, many people believe that it is a pyramid scheme.
But the two models are not the same.
To begin with, pyramid schemes are considered a crime against the popular economy in most countries.
In addition, their products or services end up having no commercial value or, many times, do not even exist.
In this scheme, only the recruitment phase is stimulated to the maximum with the promise of making money quickly and easily.
They do not usually offer training to their resellers and the processes end up being progressively discontinued.
In addition, anyone who invests to enter the pyramid must always strive to be able to invite others to enter.
In the end, whoever will really profit will be the first people who entered the business, because the profit is obtained only with the entry of new members in the scheme, since there is no sale.
In this way, the profit generated for you is always less than the profit of those at the top.
This is a typical feature of the pyramid.
Another point of the pyramid scheme is that, at any given time, you cannot recruit more people.
This ends up dismantling the pyramid, since the people at the top cannot support whoever is at the base, since the flow of money is interrupted.
How, then, to know how to differentiate a pyramid from multilevel marketing?
First, it is very important to assess whether the company is associated with ABEVD, which acts to protect and develop the direct selling model in Brazil.
All companies are evaluated by the Ethics Council and, after that, approved by the Board of Directors.
This guarantees the legality of the business.
In order not to fall into a robbery, make sure you also know if the company’s focus is on gain through sales or if it consists of the entry of new members, as already said.
Finally, we reinforce that, with multilevel marketing, it is possible to build organizations with the percentage of gains for each sale, offering the same opportunity to everyone.
The gains are proportional to the effort of each one in the network.
It is worth remembering that the entire process generates and collects taxes and is guaranteed to return or give up the business, very different from the pyramid scheme.
Advantages of multilevel marketing
It is not by chance that this model has been consolidating itself in the market, offering interesting benefits as a way to earn profit for those who are unemployed, for example.
First, among the advantages, there is a smaller number of intermediaries between those who produce and those who consume, since the network is built based on personal relationships.
Second, working with direct sales also brings some autonomy.
Resellers are free to run their own networks and businesses.
They can choose how many hours of the day they will devote to work, the type of product they want to market and the audience to which they will sell, for example.
Remember that your gain will be proportional to your productivity. So stay tuned and no soft body!
Another positive aspect is that working with multilevel marketing means being with renowned companies and already consolidated in the market.
These companies will guarantee support for you and your team.
But how do you know if a business that operates with MLM is reliable?
Look for companies that already have well-defined commission and bonus plans, that offer quality products, training, in addition to respect and commitment to resellers.
Last but not least, network marketing offers a scalable earnings model.
Let’s say you are a reseller of a brand X and have just recruited a new distributor.
Over time, this new member can create his own business network.
Consequently, the levels of the sales force multiply sequentially, as people who are included in the network by this new member can also form their own teams.
This ensures scalability and amplification of sales leaders’ earnings.
However, this earnings stream is hardly more than five networks created by resellers, which can limit the profits of leaders.
It is worth noting that the real goal is to maintain earnings based on sales and not just recruitment.
Are you interested in the advantages of multilevel marketing?
When properly applied, it is quite capable of generating significant revenue for the participants.
And again: this is quite different from a classic pyramid, which you enter just to lose money, basically.
Disadvantages of multilevel marketing
There is also a questioning contrary to the advantages offered by the model.
The main disadvantage may be a high initial investment , but this is a detail that depends a lot on the person and the company chosen.
Whoever is interested in making a career and wants to start making money from it, must first know the plans that the company offers.
If you don’t have a large capital to start, how about choosing plans that sell through catalogs?
This way, you do not need to purchase the products to market them and, with the earnings commissioned by sales, you can soon invest in other plans.
But there are also the most common plans, which require the dealer to make an initial investment or buy the products to resell at a suggested price.
In this case, the value will depend a lot on the products and kits purchased.
It is worth remembering that it is important to know and have affinity with the products sold so as not to generate any risk of loss.
Another negative aspect of this model is that it is quite attractive because of this possibility of gain from the creation of its own sales network, but building a solid business network can take some time.
This will also depend on your knowledge and experience with sales techniques.
Conquering the first customers and attracting new salespeople can be a difficult task. So make sure you have a well-aligned business approach .
In addition, there is a lot of motivation in MLM.
You can attract people, but they are not interested as the first objections arise.
This is one of the main obstacles to the strength of your network.
Multilevel marketing companies and brands.
We selected four examples of legal companies that worked very well in multilevel marketing in some countries.
The Mary Kay is a multilevel marketing company that sells American cosmetics, founded in 1963.
According to Direct Selling News , Mary Kay was the sixth largest multi-level marketing company in the world in 2015, with revenue of $ 3.7 billion.
Their dealers, also called beauty consultants, are easily recognized when they arrive at the post of sales leaders, as they use a pink car, carrying the brand’s visual identity.
You certainly must have seen one on the street, right?
The Hinode is a Brazilian company and works with a wide range of beauty products and toiletries.
To enter, you need to buy a kit of products that will be resold later.
There is no extra membership fee, the reseller pays just one amount for the products and will resell them to customers.
The company offers a unique opportunity for people who want to develop their distribution channel from home, reselling products or simply referring to their online store.
Profit is 100% on the sale of any product, plus bonuses, such as a 20% gain on the score of your new consultant’s first order, for example.
The Herbalife is one of the pioneers in this sales model and one of the largest global companies of nutrition.
Its products, such as supplements, shakes and protein bars, are aimed at stimulating and promoting a healthy life.
The company is present in more than 95 countries through a network of 4 million independent consultants.
Through it, part of the resellers has gains in the resale of the products and also by its multilevel marketing structure.
Herbalife has already suffered pyramid-style financial crime charges.
However, none of these attacks affected the company, which reinforces its character of direct selling, so much so that it is one of the associates of ABEVD.
Recharge and get paid (RAGP)
RAGP is an online VTU distribution platform duly registered to help telecom subscribers earn income from their daily top up AND utility bills payment .
It became easier to understand the controversies that revolve around this concept, right?
After reading this article, it is clear that it is a sustainable business model, based on productivity and the creation of solid relationships throughout the sales network.
Are you ready to start benefiting yourself and the market by applying a multilevel marketing model?
Remember that in order for it to be a profitable business for you, it is essential to create good relationships with companies, customers and other resellers.