Multilevel marketing (MLM) describes a type of business in which sales representatives not only sell products, but also attempt to recruit new sales representatives. Existing salespeople usually have a financial incentive to expand the sales force. "In multilevel marketing, reps sell the company as well as the product, encouraging others to join the sales team," Ronaleen R. Roha noted in Kiplinger's Personal Finance Magazine. "Then their recruits get others to come on board, and so on down the line. Their expanding army of salespeople—mostly women—is known as the 'downline.' The incentive to bring on potential competitors: The recruiter gets a cut, called an 'override,' of sales made by her recruits, and the sales of their recruits, too."
Multilevel marketing—also known as network marketing, direct selling, and person-to-person marketing—is a rapidly growing industry. According to the Direct Selling Association, MLM businesses employed between 9 and 12 million people in 1999, up from 5 million in 1991. Some of the best-known companies that use MLM techniques include Amway, Mary Kay Cosmetics, Pampered Chef, and Longaberger Baskets.
MLM businesses appeal to people who want to work part-time and need a flexible schedule, like students and mothers of young children. They also attract people who are dissatisfied with their current job situation or who have come to believe that large corporations do not reward loyalty the way they did in the past. In an article for the Business Journal, Jeffrey Gitomer called MLM "the least expensive, lowest risk, fastest path to achieving the American dream. It is at the core of the exploding 'home-based business' segment of the economy."
CRITICISMS OF MLM
Despite its impressive growth, MLM suffers from a negative reputation in some quarters. In the past, many business ventures that used network marketing techniques were actually pyramid schemes. These illegal scams promised participants the chance to make huge amounts of money while doing very little work, provided they made a sizeable initial investment. The people who started the pyramid scheme were paid off by those who joined later, but most participants did not see any return on their investment. Roha noted that an MLM is more likely to be offering a legitimate business opportunity if it has low startup costs; charges a reasonable price for products; does not require sales representatives to purchase a lot of inventory; allows sales representatives to return unsold merchandise; and provides the majority of sales representatives' income from the sale of products.
Even legitimate MLM businesses have been criticized for employing hard-sell methods. "To critics and turned-off erstwhile customers, MLM conjures up images of being hounded by door-to-door salesmen or pressured into hosting or attending 'parties' where pushy salespeople hawk products of dubious value amid peer pressure to buy something," Roha wrote. "And, to top it off, you're subjected to an evangelical pitch to join the downline." Finally, some critics note that most people who become involved in network marketing businesses do not make much money. A 1991 study by the Direct Selling Association found that 90 percent of MLM sales representatives made less than $5,000 per year.
BENEFITS OF MLM
Despite these criticisms, MLM businesses have a great deal to offer their sales representatives. The primary reason people become involved in MLM is because they value flexibility. Sales representatives can usually work part-time from home and set their own hours. Direct Selling Association research shows that 90 percent of MLM sales representatives work less than 30 hours per week, and 50 percent work less than 10 hours per week. In addition, MLM businesses usually do not require a long-term commitment from their sales representatives.
Another reason for MLM's appeal is that it enables people to start their own businesses without making a large monetary investment. In fact, the average price of a startup kit for reputable MLM companies is about $100. Gitomer noted that many people value the opportunity to be their own boss and control their own destiny. "The secret to successful network marketing is you—the messenger—and your willingness to dedicate and focus on preparation," he wrote. "Your willingness to become a salesperson who believes in your own ability to succeed. Everyone wants success, but very few are willing to do what it takes to be successful."
Of course, like any other entrepreneurial venture, becoming an MLM sales representative involves establishing goals and developing a plan to reach them. According to Kristine Ziwica, writing in Success, MLM sales representatives must master retailing techniques and understand the mechanics of compensation plans and distribution chains. Perhaps most importantly, they must also feel real enthusiasm about the product they are selling in order to be effective in creating downlines.