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Reviewed by May 19, 2023| Updated on
It is a strategy that direct sales companies use to get the existing distributors to recruit new distributors. It is a sales structure where the members of the company are encouraged to recruit new members. Sales representatives work from home typically by buying the inventory to sell it to online or in-person. The participants in the scheme are usually paid through two revenue streams namely, commissions of sales and commissions based upon wholesale purchases. It is also known as network marketing or pyramid selling. Multi level marketing practices are legal, but are a controversial strategy. This is especially the case when the organization is focused on recruitment rather than selling products. What is the Main Purpose of a Multi Level Marketing Scheme? The primary aim of an MLM scheme is to have multiple individuals in the company’s “downline” enabling them to make substantial income from little work.
MLM schemes need to have the following components to be a legal scheme – There must be a quality product or service that the company is offering. An income must be earned from the sale of products or rendering a specific service. The focus must be on sale and not only recruitment.
A company is said to operate under the model of multi level marketing when the sales is driven by a network of sales people. For instance, Company X does not operate from a fixed retail location but instead provides the tools and resources needed for an entrepreneur to conduct his or her business at various locations.
The following reasons are why there is such a negative image surrounding MLM companies – - Most people who are a part of this scheme tend to lose money and this has been proven over time. - It tends to alienate the seller from his or her existing network that is repeatedly at the receiving end of the sales pitch of the scheme. - The system is designed in a way that it is statistically impossible to win, thereby, resulting in dissatisfaction and frustration. - The schemes prey on vulnerable people.