Wednesday, January 16, 2013

What is MLM to You? Is it selling or recruiting?

MLM means different things to different people. But should they?

MLM, or "multi-level marketing", aka "network marketing", aka "direct selling", should be about selling / marketing. Any recruiting should be secondary and optional. Yet, it seems most MLMs are recruitment heavy.

The CNBC report says that often, the only way to get ahead and make real money is to recruit people.
That has sparked a growing debate over whether Herbalife and other multi-level marketing companies, are essentially pyramid schemes. That's when distributors make more money recruiting other sellers, rather than selling the products themselves, with profits flowing to the very top at the expense of those at the bottom.
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Even another MLMer's pitch claimed they only made money by recruiting, not selling. (I added "bold" to two sentences)

The next network marketing business opportunity was in the telecommunications field. We ran hard with this and quickly advanced to one of their Executive Director leadership positions. While making a part-time income in the mid-five figures annually, we realized that almost all of this extra income came from recruitment bonuses. Our monthly residual income from hundreds of team members’ customers telephone usage was in the fifty dollar range. Still not enough to quit our day job.
That is when it hit us. We were nothing more than cheap sales labor for these billion dollar MLM companies. Sure we were in our own business but the terms of our compensation was dictated to us by pay plans which paid us pennies for selling their lotions, potions and pills…or less than pennies when it came to long distance telephone usage.
sourced from

So how widespread is this? How do you really get ahead in MLM? Is it more about recruiting, or selling?

Keep in mind that a lot of MLMs disguised recruiting as selling, by allowing co-mingling of "customer" vs. "distributor".

By definition, a "distributor" is someone who distributes the products. The same position in MLM can go by variety of names. Personally I prefer the generic "affiliate", or the Amway terminology "IBO" (independent business owner").

MLM should be about selling / marketing, by definition. It's about selling products face-to-face, promoting, demonstrating, etc. instead of advertising via national or local media channels, but in the end, it's all about moving the products (or the service), with the individual IBOs getting orders for products, which can be fulfilled out of his or her local inventory... or directly drop shipped from the company warehouse. Any "recruitment" should be secondary, as you need to find people compatible with your vision, but with access to another segment of the market that you do not have access to. That's the IBO's responsibilities: sell, and occasionally, recruit people who can also sell.

But a lot of MLMs, such as Herbalife, allow people to join Herbalife as IBO merely to get the "wholesale" price instead of paying retail price for their products with sales going to an existing IBO. This is called "self-consumption", and it causes a fundamental problem in MLM...

Do you "win" in MLM by selling a lot of products and build a sales team that sells a lot of products... or do you just recruit a lot of self-consumers? If you did recruit a lot of self-consumers, are your reps SELLING, or RECRUITING? To the company it's almost the same: products are moved, but are the salespeople, the actual IBOs on the front lines, doing the right thing?

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