This post is for those who go through life with a predisposed opinion of MLM businesses, without knowing the actual facts behind it. The truth is, everything is a MLM business and I am going to prove that right here with some case studies. First, let’s define an MLM or Network Marketing Business. MLM stands for Multi-Level Marketing, and the easy definition of an MLM business is one that pays each “level” or tier, a certain percentage from a product or service. The higher tiers generally make more, not because they have a larger percentage but because they make a smaller percentage off of higher volume.
Most people think of multi-level marketing as work from home, or a MLM home business opportunity, and while it is true that there are many MLM home based business types out there let’s start with something that isn’t a multi-level network marketing home business. To start with, let’s examine a company that most people are aware of, and nearly all who are aware know the business structure of. The Kirby Company, which makes and sells high quality vacuum cleaners door to door. The Kirby Company business model starts with the factory at the top, and then it passes down to the next major level, the distributors. The distributors are those who own a regional franchise of the company. The next major level is the sales force, which the company calls dealers.
The factory makes the vacuum, let’s assume at a cost of $500 per unit, and sells it to the distributor. The final retail price on a Kirby Vacuum is between $1300 and $1500 dollars, so let’s say that the distributor buys it for $800. The distributor then sells the machine, on a commission basis, to his or her distributors for let’s say, $1000. This gives the distributor a profit each time they buy one, or sell one for him. This also puts a couple of hundred dollars per machine in the dealer’s pocket. Sounds like MLM right?
Let’s examine another company. Let’s call it Jackson & Jackson and say that it sells shampoo, and other hygiene product, especially baby products. Now, J & J makes a bottle of baby powder at their factory for .50 cents. They turn around and sell it to their main distributors, which we shall leave unnamed, say at a cost of .80 cents. The distributors turn around and sell it to the stores, who buy it for $1.00 per bottle, and the store marks it up 100-200 percent, which is common practice and sells the baby powder for $2.39. Now, you tell me what the difference is.
As you can see the network marketing model is really no different than most other business models. The product passes through layers in the distribution channel and at each layer a profit is taken. With a MLM business, you get a profit on every level of sales representative you bring into the business.