To understand exactly what MLM is we may be best suited using examples. For our first example we can use a simple night out to dinner. Often one may eat at a great new restaurant and rave about it to friends. The friend goes and spends money at the restaurant and the referrer does not get compensated for bringing that customer in. In the case of MLM the meal may cost $20 and the MLM company may pay 5% to every referrer and their referrer through a specified number of levels / referrers. That is the simple explanation as of course there are many compensation plans and they too should be carefully scrutinized and evaluated. However, overall it’s a simple business model, it works when done properly and legally, and it is a means of marketing in order to generate sales.
The fundamental differences between Direct Sales and Network Marketing are really quite simple: Direct Sales is a few people doing a lot; Network Marketing is a lot of people doing a little.
As an example let’s imagine you have a product or service and you would like to do $1,000,000 in sales during the course of the year. Using the conventional method of direct selling, you might hire 100 people, imposing a sales quota of $10,000 per sales person.
100 sales persons x $10,000 = $1,000,000
With Network Marketing you reverse the numbers to achieve the same results.
10,000 sales persons x $100 = $1,000,000
Well, you're saying to yourself, "Self, I'm no good at selling, so this isn't for me." Wait a minute! You're already doing it. The problem is you're not getting paid for it! "What?" you say. "How can I already be doing it? I haven't joined anything. I don't even have my own business." While that may be true you almost certainly do some form of network marketing.
You probably sell something every day. Yes, you. Every time you have a conversation with someone - suggest a book, movie, restaurant, etc… you're selling, whether it’s your ideas or opinions on someone elses product or service is irrelevant, it’s still word of mouth marketing. Traditional businesses count on you doing this for free. In fact they love it when you do. Again, this is called word-of-mouth marketing and is exactly what MLM is all about. Only with MLM you get paid when you do it. Can you imagine using this same concept through the Internet? Word-of-mouth now takes on a more poignant and broader meaning. Why not get paid for something you're already an expert at?
"Expert?" you ask. Yes, you are an expert. You paid to see the movie, use a product or service, try a restaurant, etc…. If you have done that and others have not then obviously you are much more of an expert than they. Anyway, back to the point, the people you recommended the movie to also paid to see it, right? And the people they recommended it to... and so on. Now, did you get paid for referring this movie? No. Did anyone you recommended it to get paid for recommending this movie to others? No. The only person who got paid was the person who owned the theater and those involved with the production of the movie. Further, they get paid over and over again on nearly every single sale (each time someone watches the movie in the theatre, on VHS, DVD, Pay-Per-View, etc….) while you, the person who began the whole referral chain get nothing.
Wouldn't it be better if you got paid too? After all it was you who were instrumental by virtue of your referral for a whole slew of folks seeing that movie. That's why Network Marketing is so popular and lucrative. You and everyone you refer and everyone they refer gets paid, down to a specified number of referral levels and per the companies compensation plan. But isn't that an illegal pyramid?
