MLM – The Business of the Future
Researched by: Gerry D. Gumba
MLM… what is it? Is it a trend? Is it a product? Is it a company? Is it a degree course? MLM has become the most talked about business yet the most ignored and misunderstood. Have you ever heard the latest talk-of-the-town craze? Perhaps you even heard that a lot of people from all walks of life become millionaires in a very short period of time. If you are one of those persons who were invited to attend a seminar on MLM and you feel impressed and challenged (Who wouldn’t’ be? If offered by an opportunity to reach your dreams and change lifestyles within 3 to 5 years, what would you do?) . But deep inside of you, you’re saying: “It’s too good to be true.” Worst, when you begin to share what you have learned, people close to you don’t believe you.
They rejected you and ridiculed you instead. Why?
It is very important to face the fact that not everyone is willing to join MLM. Why? Well, of course you cannot please the whole world but there lies a deeper reason that influences them. I prefer to call these as…
Barriers to MLM:
1. Ignorance. Though MLM has been around for 50 years, most people don’t know its existence. Sources said that 80% of the people today has never heard of it. About 10% has heard of it but don’t understand its concept. So misconceptions about MLM mislead them into the following barriers which ignorance is the primary reason.
2. Fear. The fear of the unknown stops people from venturing into a strange matter. The fear of failure denies a person the opportunity to try. The fear of rejection and fear of using people also add to that. They feared to try MLM.
3. Doubt. Some people are always suspicious on anything. They treat every opportunity with malice. They think of MLM as a racket, illegal or monkey business. And there are even some who suspect MLM as the devil’s way of putting man away from God for love of money.
4. Pride. There so many people who are reluctant to accept the fact that there is a better way to those steps that they’ve made before in their lives because of pride. They simply reject MLM to hide their misguided life.
5. Prejudice. There are people who never give way to new ideas. They are those who resist to change. They forgot that there’s nothing permanent in this world but change and to resist it means failure. So they fail to try MLM and to succeed.
This is designed for those who are interested to know and to provide MLM networkers the general nature of MLM in order to be prepared in handling situations and to overcome ignorance. To better understand MLM let us learn first what…
MLM IS NOT…
Direct Selling. Sponsoring and sharing is the business concept of MLM, not direct selling or door-to-door business. (See MLM vs. Direct Selling.)
A Pyramid. Pyramid schemes are illegal. MLM is not. (See MLM vs. Pyramids.)
A Get-Rich-Quickly Scheme. MLM does not guarantee your success; it’s for you to achieve. In MLM there’s no such thing as easy money. Hard work and persistence are the only way to success. MLM provides only the right direction or system to reach your goals in life. (See the MLM Income Sources and the Positioning and Promotion.)
A Fad. MLM has been existing for more than 50 years. If it’s a fad, it should be no longer here today. (See What is MLM? and Origin of MLM.)
A Cult. There is no obligatory responsibility in MLM. Members are independent distributors. You are your own boss. (See MLM Points of View)
An Anti-Christ Movement. MLM is non-sectarian and non-religious system. And it’s not anti-religion. MLM does not promote any religion to discriminate another with prejudice.
A Political Propaganda. MLM is non-political. It is a private business for the interest of the public. It has no territory, nationality, race, or political ideology.
The Business of the Future. According to the Wall Street Journal, 60% to 70% of all goods and services will be distributed through MLM at the beginning of the second millennium. (See The Future of MLM.)
Two-in-One Business. You can do wholesale and retail business. (See You Don’t Have To Sell… and
… But You Can Sell.)
A Lifestyle. You can achieve your dreams from what you do ordinarily everyday by using MLM concept. It’s a way of life. (See MLM Concept.)
A Family Business. You can enjoin your loved ones in this business. This is the business where husband and wife are partners. It’s a family synergy.
People’s Business. In MLM, people needs people because it’s basically a symbiotic relationship among the people to produce a positive lifestyle. MLM is for the people. MLM is people power. (See MLM Leverage Principles.)
Sharing and Helping Business. In MLM, we share not only the products or services but the opportunity to succeed in life. We have no choice but to help people because the more you help the more you become successful.
A Fair Business. People from all walks of can do MLM business because it does not require physical fitness, education, experience or skill, and capital. And it has no risk.
A Part-Time Business. You don’t have to quit your job or do it full-time. Just use your free hours and leverage your effort. (See MLM Leverage Principles.)
A Friendly and Loving Business. People can easily relate to MLM and make friends in the process. It develops a close relationship among the people, which is basically God’s principle of loving one another.
A Perfectly Legitimate Business. You may inquire at the Department of Trade and Industry or at the Securities and Exchange Commission about MLM industry.
THE IDEAL OPPORTUNITY
MLM and Personal Freedom. We spend 60% of our life to work so if you missed the right direction you can’t achieve your success. Success means freedom, not only financial freedom but freedom of time. If you are employed right now, do you think you’re free? Do you know that employment is just the modern term for slavery? Forced labor was just replaced by unfair compensation, wasn’t it? Well, you would say, we have no choice because if we don’t work we cannot earn money to support a living. Look at what Jacob Green says about it:
“Are you willing to trade off 60% of your time just to have money to spend in the time that’s left?
That’s not a good investment. And if money is what motivates you, ask yourself this: What if you
could invest in yourself? Would you invest more if you knew you were working on something that
used your talents and tapped your passion? If you could invest in your self, why not invest in
Don’t Sell Yourself Short. We live in this business world and everything in it. 85% of the business world is marketing. It is the transfer of goods or services in exchange of money. We market ourselves when we apply for a job. Service is our business because it is what we are paid for. The only difference is that we sell ourselves short. Our bosses are the ones who enjoy the benefits of our effort. Therefore, we do business all the time so why don’t we invest in ourselves? You must become a boss to achieve your dreams. The bad news is that in the world we know, only very few are qualified to it. The good news is in MLM you can be your own boss.
MLM is ideal opportunity for:
1. People who want to quit their jobs and find a better source of income.
2. People looking for extra income
3. Discount oriented persons
4. People looking for 2nd or 3rd income
5. People who wants to own a business
6. People looking for an opportunity to change lifestyles
7. People looking for an early retirement
WHAT IS MLM?
MLM stands for Multi-level Marketing. It is the movements of products and services from the manufacturer to the consumers through a network of independent distributors.
MLM is a legitimate multi-billion industry offering the opportunity for financial independence with virtually no risk. Sources said that 40% of US millionaires today are from MLM industry and it is in someway being taught at Harvard University, University of Illinois, University of Houston and now at the Ateneo de Manila University (first in Asia to teach MLM as a full semester 3 units course in June 1999.) Asian Institute of Management (AIM) includes MLM in their marketing strategy classes. We also have MLM Institute of Asia today. (Check your postal directories if you want an inquiry.)
MLM concept has been with us for a very long time now, that it can be traced back even to the pre-industrial times though there was no record of its systematic applications. Religion, even Christianity, has been propagated in this way. Therefore it’s no longer new to us. However, its unlimited income potential has just been realized in recent years.
MLM is a natural business. Actually, you are involved in some form of MLM everyday. When you watched a good movie you tend to tell it to your friends who in turn will watch it also and eventually, will do the same thing as you did. The cinema’s commission will increase because of your “word-of-mouth” recommendation. But how much are your commissions? Nothing, is it? It’s also true when a new restaurant opens, when a new product is introduced in the market, or when you recommend a familiar medicine to an ill neighbor.
That is what MLM concept is all about. It is simply sharing a good product, service or business opportunity with others. We are doing that all the time. The only difference is that when you join an MLM company you earn commissions and bonuses everytime a person buys the product you recommend. It comes natural to us because we practice its principle everyday. MLM is perhaps the purest form of free enterprise. People from all walks of life are afforded the same opportunity to succeed.
WHY MULTI-LEVEL MARKETING?
Multi-level refers to the system of compensation provided to those who are causing the products to move or the service to be provided. “Multi” means more than one. “Level” refers to the generation of people doing the business. “Marketing” means moving a product or service from the producer or provider to the consumer.
Figure 1. Personal Connections. MLM relies on everybody’s contacts or network.
ORIGIN OF MLM
MLM is the result of the following.
Business Trends. The business trends are direct sales marketing and franchise marketing. Aside from manufacturing, direct selling and franchising are the only business that will survive in the future. Look at your TV set. New products are available only through direct sales order. Franchised markets are everywhere. Food chains, convenience stores, water stations, audio-video shops, hair salons, etc. The problem is very few people are willing to sell and very few can afford the very high cost of franchise fees. These lead to MLM – the business of the future.
Marketing Evolution. The origins of MLM plans are evolutions of direct selling in the 1940’s. Two sales agents from a direct selling company in California devised a marketing plan in 1941 that attracts customers by giving them percentage commissions. This was known as the “C&M Marketing Plan” – the beginning of MLM industry. The marketing plan prospered in the 1950’s. And in 1959, two employees from that company founded the first MLM Company. Since then, many MLM companies soon emerged. In 1970’s, the US government questioned the legality of MLM but the decision in 1979 that favored MLM industry opened the floodgates of business opportunities. Just as franchising gave way to entrepreneurship in the 70’s and 80’s, MLM is doing the same now at a very small start-up cost.
Figure 2. MLM Evolution.
MLM today is a combination of direct sales and franchising. It has adapted the direct sales method and the leverage principles of franchising. That’s why MLM is called: “The Cheapest Franchise Business” or “The People’s Franchise.”
Reasons for Growth of MLM
1. High advertisement cost and increasing marketing cost in traditional marketing
2. Information technology
3. Advanced telecommunications
4. Advent of home-based and part-time business
5. Desire to own a business
6. Low investment requirement
7. Development of relationship marketing
8. Lifestyle choices
9. Foreign demand for imported products
10. Wholesale buying or direct buying
11. Corporate downsizing
12. Business trends
13. Corporate interest (MCI, Sprint, Gillette, Colgate-Palmolive, Texas Instruments are planning to buy or build their own MLM company. – Source: “Start and Succeed in … MLM” by Kishel/Kishel.)
MLM VS. TRADITIONAL MARKETING
In traditional marketing, the manufacturer deals with wholesalers who deal with middlemen who deal with retailers who sell the products to the consumers. 50% of the product cost are marketing costs, (which includes advertisement, promotion, profits generated by middlemen). This is one major reason for high prices today.
In MLM, we can avoid these marketing costs because you are the entrepreneur, not just a mere consumer. You have your own business but not on your own. You can buy products at wholesale directly from the company you are representing. For this reason alone, discount oriented persons became interested in MLM.
Figure 3. MLM VS. TM.
● Independent distributors replace traditional middlemen.
● Word-of–mouth recommendation replaces mass media advertising.
MLM VS. DIRECT SELLING
MLM is not the same as direct sales marketing or direct selling. MLM markets the products/services even without “one-on-one” contact. While direct selling always require “person-to-person” method of marketing. We want to clarify this because 95% of the people are negatives on the word “selling.” And one reason why people don’t join MLM because they misunderstood it as direct selling. The misconception is due to 1) most reputable MLM companies belong to the Direct Selling Association (DSA), 2) MLM really evolves from direct selling companies and 3) the method of distribution of products is similar to direct sales. The difference is that in direct sales, the distributor cannot earn commission from the sales of the people he introduced into the business unlike in MLM whose
Figure 4. MLM Vs DS.
MLM VS. PYRAMIDS
MLM is not a Pyramid. MLM is not a pyramiding scheme or pyramid sales. MLM is a legitimate industry recognized worldwide by FTC thru Fair Trading Act of 1979 and is a fair business. Pyramid scheme are often confused with MLM because they use the same vocabulary and needs large networks.
Pyramid Sales are Illegal. Pyramiding is prohibited by law under article 53 of RA-7394. One of the main reason why they are illegal is their failure to provide a valid service or product movement. When we say business, The legal notion is that there is an exchange of goods and services. The absence of either of the two is the reason why Securities and Exchange Commission doesn’t approve them. Maybe they are multi-level but they are not marketing because they don’t have product movement. According to the Consumer Act of 1993:
The profits of the person employing such a plan are derived primarily from the recruitment
of other persons onto the plan rather than from the sale of consumer products, services
The Pyramiding Scheme. They will just encourage you to get-rich-quickly by earning easy-money. They will tell you that you need not do anything but to recruit people after you have signed-up and paid the registration fees. Your commission will be based on the number of people you recruited and derived from the money invested by them. You will realize that it is a “ground-floor-opportunity” (no chance for you to reach the top or nobody was there for you to recruit anymore) normally after you found another 2 or 3 victims. They exist in many names: Pentagono, Octagono, Octopus Network, Inc., Palpen Pension Plan, Proverbs Livelihood Association, etc. The government imposes strict orders against pyramid scam. Beware of them.
The Truth about Pyramid Myth. Every organizational structure in this world is a pyramid (hierarchical). From home, to church, to office and to the government is built on a pyramid system. But according to Leonard Clements: MLM is actually the only form of business that does not form a pyramid.
MLM as an Inverted Pyramid. Don Faila assumes that MLM is an inverted pyramid. As an inverted pyramid, MLM has more rooms of opportunity at the top. Unlike in pyramids where the chance of going at the top is very slim.
Figure 5. MLM Inverted Pyramid.
MLM is a Diamond. Clements suggests that MLM is a diamond and not a pyramid. According to him, the shaded area in the figure are distributors that doesn’t really exist. Well, diamond is forever.
Figure 6. The Diamond Structure of MLM.
YOU DON’T HAVE TO SELL…
The Secret to Success of MLM. The real success in MLM is wholesale business. We call this “sponsoring.” Others called it recruiting but they are not the same things. Recruiting is bringing someone who is experienced in MLM (perhaps in other companies). While sponsoring is bringing someone new to MLM to whom you are making the commitment to train. Sponsoring is not convincing people but sorting of willing partners to do the business. You can build your customer base from your network of friends, neighbor and relatives. You don’t have to sell but there must be a product movement. “Let your sales as a natural result of building your network organization” as Failla puts it. Your sales will come from sharing the products or service to your friends whom in turn sharing with theirs also. You even don’t have to talk to strangers. That’s why another name for MLM is Network Marketing. (Networking is a broad term because not all of them are MLM. Network means contacts, acquaintances, connection… etc. You can use networking in business, telecommunications, computers, job search, etc.)
Figure 7. Non-Personal selling.
… BUT YOU CAN SELL
MLM is 2 in 1 business. You can do retail or wholesale. Members in MLM are called independent distributors. As an independent distributor you are free to do the business or not to do it. Since you are buy products at wholesale, you can (if you want to) sell them at retail and make a profit. This is the selling part of MLM but we call it “sharing.” Experts define selling as “calling on strangers trying to sell them something they may neither need nor want.” While sharing is telling persons about something that they really need or want. MLM retailing can help you in your financial needs. You can earn 30% to 50% of the product price.
Figure 8. Retail selling.
THE TRUTH ABOUT PRODUCT MOVEMENT
Product movement simply means sales. Income comes from sales so somebody must buy. Without product movement there is no way of earning an income in any business in the legal world. But in MLM, it doesn’t necessarily means somebody must personally sell. For example, if you are 20% sharing the products and 80% sponsoring people to do the business, you are 100% moving the products.
Our common knowledge of leverage in traditional business is that it is a risky and costly step. But lever is a machine, if we can device a system it will help us achieve our goals the easier and faster way. In MLM we use the cheapest yet the most valuable way.
Time is Gold. Time is our greatest enemy because it puts us into a dimension that limits us and a duration that controls us. But time also is a matter of attitude. If we can put the right attitude at the right time, time can be our greatest ally. Time will turn into gold. Our time maybe won’t last but time itself is forever.
People is Power. History shows that power comes from the people. If we can guide the people toward a common goal, we can use that power. Helping the people is the best way to start.
The Power of Multiplication. To apply leverage, you must multiply your effort. Since your effort is limited to only one you must multiply your time through other people, thus multiplying your effort. As J. P. Getty points it:
“Its better to earn 1% of 100 people’s effort than to earn the same 100% of my own effort.”
The Power of Duplication. To duplicate your effort you must learn how to teach people how to teach other people to do the same. That’s why Don Failla said:
“I would rather sponsor 10 teachers than 10 salesmen.”
The Power of Balance. To obtain balance you must avoid working with people that’s more than you can effectively supervise with while maintaining a good width and depth to avoid attrition in your network organization. Balance will not let you fall down. Remember that you’ll be dealing with a large number of people so try to consider the view of Joe Hardwick Sr.:
“Nobody can work effectively by directly supervising more than 5 people at a time.”
THE NUMBERS GAME
Imagine if you could talk to two persons to do this business at part-time (2 hours per day) only and teach them to do the same. You’ll have 2 original persons working under you. If they (your 2 frontlines) get 2 persons each that will be 4 persons working under them. When 4 get 2 persons each that will be 8 persons working under them. Then 8 x 2 = 16 persons working under them. Then 16 x 2 = 32. Thus, you have 2 on your 1st level + 4 on the 2nd level + 8 on the 3rd + 16 on the 4th + 32 on the 5th. You’ll have an overall of 62 persons working under you. If they will do the business 2 hours a day, twice a week you’ll have 992 man-hours a month (62 persons x 2hrs. /day x 2days/wk x 4wks/mo.) Compare that to 160hrs. /mo. (8hrs. /day x 5days/wk. x 4wks. /mo.) of full-time working employees.
THE TRUTH ABOUT MARKET SATURATION
Market Saturation. Some fear that maybe MLM has saturated the market (or nobody to sponsor anymore) because there were already a lot of people who became successful in MLM considering the idea of networking. Well, the truth is if there is market saturation that really exist (which don’t actually happen in MLM) there is none other than the traditional world of business. Think now of a business where you can be assured to be competent.
Ground-Floor-Opportunity. Some fear that late comers in MLM will not be successful because there is nobody to recruit anymore because pioneers in MLM has sponsored them already (referred as ground-floor-opportunity which is not what is actually happening because not all are joining MLM instantly). The real ground-floor-opportunity is the traditional employment. Look around you. What we believe as normal is the actual example of this. Believe it or not, only 20% of the newly graduates are successful in applying for a job. 80% are failures. Where will they go and what they’re going to do? No wonder our national problem is unemployment and underemployment.
MLM INCOME SOURCES
Reciprocal Vs Residual. Generally, reciprocal income is earned in exchange of the effort exerted by the person. Such income maybe obtained again by exerting another effort. This is the income situation of employees, servicemen, retailers, salesmen, etc. While residual income is earned through the production caused by the effort exerted once or a few times only. A good example is the royalty income of artists. They don’t have to do it again but their income continues. Residual is forever earning. In MLM you can earn both.
Linear Vs Generational. Linear commissions are based on actual volume of sales on a specific level. While generational commissions are based on group volume sales. You can earn either of them depending on your company’s compensation plan.
Retail Vs Wholesale. Retail income comes from your personal sales (since you buy at wholesale). Wholesale income comes from your network or group sales (since they are independent distributors and wholesale direct buyers like you.) In MLM you are both retailer and wholesaler.
Different Levels of Income.
1. As a direct marketer, you can earn retail income (or discount) and rebates.
2. As a supervisor of people (or downlines), you can earn override commisions (wholesale income).
3. As a marketing manager of your entire network, you can earn leadership bonus (or royalty).
Uni-level. Unlimited width but limited depth (five to nine levels). Linear commissions. Generally, this is the simplest form of MLM plan. Uni (one), level (stage) because no position or rank is achieved.
Binary. Limited width (two frontlines) but unlimited depth. Generational commissions.
Break-Away. Unlimited width but limited depth (four to seven levels). Generational commissions.
Australian. Unlimited width and unlimited depth. Commissions are linear. This known in the US as the “two-up” plan because the first two downlines goes to to the sponsor.
Matrix. Limited width (two to seven lines) and limited depth (five to twelve levels). Linear commissions. In case of exceeding the sponsoring limitation in the first level, the excess are put under the deepest level. These are called as “spillover.”
Hybrid. Any combination of the above.
POSITIONING AND PROMOTION
Stair-Step. It is the multiple stages or ranks advancement introduced by some MLM companies. Unlike uni-level, positions like silver, gold, diamond or supervisor, manager, managing director are promoted by complying certain company requirements.
Attrition — The falling away of downlines.
Crossline — Networkers with different lines and sponsors but under the same MLM company.
Depth — Refers to the levels of downlines under you. (As in go deeper.)
Downline — People who join under you in MLM. Beginning from your first level down to the deepest level.
Frontline — The original person you sponsored or recruited into MLM. They are your first level or generation.
Networker — A more correct term is “Network Marketer” which refers to the distributors in an MLM company.
Sales Volume (SV) — The total sales of your network.
Sideline — Networkers with different lines but the same sponsors.
Sponsor — The person who invited or recruited you to venture in MLM industry.
Upline — Refers to the people starting from your sponsor and up.
Volume Bonus (BV) — The percentage commission earned by a networker from the sales volume of his network.
Width — Refers to the number of persons you personally sponsored. (As in go wider.)
ADVANTAGES VS. DISADVANTAGES
1. Unlimited potential
4. International business
5. Ready-made business
7. No territories
8. You are your own boss
9. Equal opportunity
10. Residual income
11. Early retirement
12. Low start-up capital
1. Long term plan
2. Low income at the start
3. Less control
4. More responsibility
5. Indefinite time of work
MLM POINTS OF VIEW
Consumers’ Point of View. From the consumers point of view, MLM is a business plan in which you can enjoy being a wholesale buyer and the chance to earn from sharing the products or services provided by an MLM company. Not just a consumer but an authorized distributor.
Entrepreneurs’ Point of View. From The entrepreneurs point of view, MLM is a business plan in which you can enjoy the low start-up cost (capitalization), ready-made marketing plan, wholesale business, portability, network-based consumers, independence and the benefits of using the products at low cost. No need to hire employees.
THE FUTURE OF MLM
The future of MLM is very promising. MLM is still in its infancy and it is still growing. In the past, MLM was thought to apply only to selling of personal care and household products but today it includes a computer program, financial advice, travel package, car, clothing, etc.
In the future, 75% or more of the goods and services will be distributed through MLM. This is evidenced by the decline of many large companies. Even legal and medical advice will be networked through MLM. MLM will replace employment as the primary source of income, just as employment replaced forced labor. Mechanics and technology will replace human labor. Corporate downsizing evidences this. People in the future will earn income from the products they use for every need and from the persons who use the products they recommend. MLM is the lifestyle of the future.
Key Industries that Use MLM at Present*
34% Home/Family products
29% Personal Care products
18% Services (Telecommunication, Insurance, etc)
13% Health care products
06% Education and Leisure (Books, sports, entertainment, etc.)
Compensation Plan Used**
Reasons for Joining MLM**
49% Extra income
31% Freedom of time
11% Products purchase
Source: *Leonard Clements
INSIDE NETWORK MARKETING
START AND SUCCEED IN MULITI-LEVEL MARKETING
THE PARADIGM OF MLM
A common paradigm to be successful is to acquire higher education to find a stable employment or a big investment in business. You must have a total paradigm shift if you want to be successful in MLM. A change of attitude and mind set. A clear paradigm of what MLM benefits that you can enjoy — leverage, exponential growth and residual income.
WHAT MLM CAN OFFER?
You can achieve your dreams through the earnings derive from using and sharing MLM products and services.
A large number of people now become successful and enjoy everything out of life by giving the best they can to share to mankind the benefits of MLM – financial independence and personal freedom or freedom of time. You could be one, too.
HOW TO CHOOSE AN MLM COMPANY?
Choose the best MLM company. But how? There are over 10,000 MLM companies worldwide. They may differ in their products and marketing plans but they are rivaling to each other simply because they offer the same thing — OPPORTUNITY. To avoid this MLM stigma the best thing to do is:
1. Look at their company profile.
2. Look at their product lines.
3. Look at their marketing plan.
The ideal MLM Company must have 1.) Good management team, 2.) Products that are consumable
daily necessities so that there will be continued repeat orders, and 3.) Realistic, ethical, and dynamic marketing plan.
“START AND SUCCEED IN MULTI-LEVEL MARKETING” (1999)
by George Kishel & Patricia-Gunter Kishel
“MULTI-LEVEL MARKETING” 3rd ed. (1997)
by Peter Clothier
“WHAT YOU SHOULD KNOW ABOUT MULTI-LEVEL MARKETING BEFORE YOU JOIN” (1997)
By John Counsel
“INSIDE NETWORK MARKETING” (1997)
By Leonard W. Clements
“SUCCESS IN MULTI-LEVEL MARKETING” (1992)
By Gini Graham Scott
“HOW TO MAKE BIG MONEY IN MULTI-LEVEL MARKETING” (1989)
By Dave Roller
“THE BASICS — HOW TO BUILD A LARGE SUCCESSFUL MULTI-LEVEL MARKETING ORGANIZATION”
By Don Failla & Joe Hardwick Sr.
2004 edition of the 1999 research work of Gerry Gumba. Please do not reproduce without permission.