There are so many kinds of business models that you can run today. If you’re a beginner, you can start running a business as a reseller, drop shipper, or any kind of business model. Besides those models, you must have heard about Multi-Level Marketing (MLM).
This kind of business model is quite known and interested by many businessmen and women as their earlier steps to run a business.
However, what exactly is MLM? Check out this article to find out!
What is Multi-Level Marketing (MLM)?
Multi-Level Marketing or MLM is a business model that sells a product or service directly to buyers. This buyer usually will be referred to as a member.
MLM has a business system in which companies encourage their existing distributors or members to promote and sell to other potential customers. Through this system, members will get a commission or some kind of points which can later be referred to as their income.
MLM also encourages its members to recruit other customers to join their businesses. The more people they can recruit, the more commission they can get from the company.
The number of people that members can recruit will raise their levels in this system. Raising this level will generally affect how much commission they will get.
MLM actually can be run flexibly. Companies generally don’t make a policy regarding the working hours of members, so members can determine their own working hours.
MLM is also chosen as a suitable part-time job. This business system is perfect for those who want to earn a side income.
How does Multi-Level Marketing work?
If you are still curious about MLM in more detail, this is how MLM works.
MLM is usually run by B2C companies. That means sales of products are distributed directly from companies to individuals.
MLM works when a distributor or member succeeds in selling the supplier’s products to other customers, so members get a commission from the supplier because of these activities.
In addition, members can also get bigger commissions if they can attract other customers to become members of supplier products. In other words, members should have the ability to encourage people.
This MLM can be effective if members get the commission they deserve. The stipulation amount of commissions depends on how many products they can sell, as well as how many people they encourage to convert to business. This means the more layers there are, the more money they can earn.
Pros and cons of Multi-Level Marketing
The Multi-Level Marketing model has been implemented by many companies. This is because MLM benefits both parties between the supplier/company and the customer as a distributor.
However, it turns out that there are pros and cons caused by this business model. The pros and cons are:
- Mutualism – Actually this business model benefits both parties (supplier and distributor). Suppliers can expand their market by attracting more customers to become their members. Distributors earn commissions from offering products and recruiting new members.
- Flexible Time – Distributors freely use their time when running MLM. Working full-time or part-time is an absolute decision that they can choose. Generally, distributors run MLM as their part-time job to earn side income.
- Low Commission – Different company, different policy. The percentage of commissions that distributors get in recruiting new members is sometimes smaller compared to when they do other business models. So, you need to research good and suitable suppliers.
- Unevenly Commission – If you just joined MLM, then don’t be upset if there are members who have higher commissions than you. Besides the ability to encourage, commissions can be determined by how ‘thick layers’ they have due to recruiting many members.
The difference between Multi-Level Marketing and a pyramid scheme
A pyramid scheme is a similar marketing model to MLM. Both actually have a similar marketing system. However, these two models are also legally different. How come these models are different?
The biggest difference underlies these two business models is their legality. MLM is a legitimate business model, while the pyramid scheme is an illegal business model.
MLM works well when the company distributes its products to distributors for purchase. That means, there are actual sales in the MLM system.
Suppliers clearly show the stock of products and distributors can access them. So that the products can be re-sell to potential customers.
Conversely, the pyramid scheme does not supply any real products or investments. Members will be encouraged to gather more people in a certain period of time and be promised payments.
The more people can be encouraged, the more widespread the pyramid scheme scams.
This is the difference between MLM and pyramid schemes. They do have the same business system, but both are legally different.
If you intend to start an MLM, don’t be trapped by this kind of pyramid scheme business model! Company research is required due to the security of your business activities.
Examples of the company that use Multi-Level Marketing
Many companies practiced Multi-Level Marketing as their main strategy. Because basically, this technique can be run by anyone and in any industry. However, here are trusted companies that practiced MLM:
- Mary Kay
- Herbalife Nutrition
The strategies to succeed in Multi-Level Marketing
Some people are afraid to join the MLM system, generally due to misunderstandings and negative images of this system. In fact, MLM can be a suitable business model for beginners.
Another reason is some of them see that MLM as just a promotional technique conducted by companies. They don’t see MLM as a business.
In fact, MLM is a business model that can be similar to resellers and drop shippers. Therefore, if you are an MLM practitioner, then you need to know the MLM strategy, consider the following points:
1. Arm yourself with knowledge
You certainly know that MLM is a business model which offers products directly to customers as members. Therefore, try to gain knowledge about certain direct sales companies. Does it have a good market? How much is the demand?
This knowledge will also help you to be protected from pyramid schemes. So you won’t be able to experience a scam from this kind of business.
Also getting to know how much commission you will get from the related company! Is the percentage sufficient and appropriate for you to receive? You can estimate whether the company is suitable for you or not.
From all the considerations above, you can think of other interests for your needs in the future. Try to be always curious and critical!
2. Find a company with a product you like
There’s nothing more fun than doing something we love. So the same when you are running a business. If you are new to the business world, you can start by choosing a business sector that you like. Why so?
You will be easier to understand, explore, and accept all knowledge related to the sector. With this, you can more reliably handle business throughout its lifetime. Even so, go try to pay full attention and passion to your business!
3. Set your structured goals
Setting goals in business is a must. The strategy will be easily drawn up if goals are formulated correctly.
For instance, if you want to sell 100 products in a month, then you can set a strategy by interestingly promoting the products so that you can attract more customers than before.
These goals will also make you always keep on making an effort. Imagine if you do business without having a goal. Isn’t it like you’re walking aimlessly? Goals keep you running consistently in your business.
4. Research and analyze your target market
The biggest mistake an MLM practitioner makes is targeting everyone as a potential buyer, including family and friends.
Family and friends can be good potential customers to buy your product with compassion, but they might not be potential customers for your product.
For example, if you sell traditional medicines, while your family is a modern-minded person, then your family is not a good potential customer. They may buy on the first try, but not as long-term customers. Even more, recruiting them to make a member.
All you have to do is do a market analysis and look for a potential target market to become a customer. This is much more effective than you targeting everyone.
5. Share your product every day
The next biggest mistake an MLM practitioner makes is being too focused on recruiting. Don’t focus on recruiting people!
You have to remember that income can be easier for you to achieve when you are successfully selling products. So, just focus on sharing your product and making sales!
Know that people are more attracted to products if they love them. So, it would be easier for them to convert to your business.
6. Don’t force your family and friends
There’s nothing more annoying than when you feel forced to do something. Including in business life. What kind of businesses purposely use coercion in practice?
If you are an MLM practitioner and often force your family or friends to buy products, then from now on, avoid that technique! You may be successful in getting them to buy, but there will come a time when they become irritated and you lose the market.
Instead of forcing, maybe you can make a list of the 100 most successful people who will be interested in your product. Targeting the market is better than forcing it.
7. Listen and be a solution to customer needs
Who doesn’t want to have a solution to every problem? You can use this event to attract more customers to your business. Sales are all about being a solution to what a customer needs.
You can start by listening to their needs, then make your product as their solution, so you can offer it and make them interested in your product. This condition makes customers consciously prefer your product over others because you are able to provide a good solution for them.
8. Stand out with other distributors
It’s clearly impossible if you run a business without having competitors. Competitors always exist as you enter a business activity in the market.
This condition often makes customers confused in choosing a product because there are so many choices of similar products. Well, this is where your role is in making them believe, why should they choose your product over others?
Give them a reason why they should choose you! To solve this problem, then you can try to make something unique. Try to personalize your product! For instance, you can hold a reward program or something that offers greater value.
That’s all you need to know about the MLM industry. Besides, there are so many pros and cons regarding this business system, MLM provides many benefits for its practitioners. And the most important thing is, MLM is a legal business system.
If you consider yourself to do MLM, try to set structured goals and equip yourself with knowledge. Again, don’t ever force anyone!
I hope this article is useful so that you can more easily practice it in the MLM world. Happy practicing!