Working At Home - MLM BASICS

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MLM BASICS

MLM (short for “multi-level marketing”) is a completely legitimate way of making money, and many people have successfully built up very good incomes using the MLM business model. MLM is frequently confused with pyramid or “Ponzi” schemes (Ponzi schemes are illegal, by the way). Ponzi schemes are named after Charles Ponzi who achieved notoriety through his fraudulent scheme in the early 1920’s. Mr Ponzi’s name was brought back into the limelight by the apprehension and trial of Bernard Madoff who was sentenced to 150 years in prison in June 2009.

An MLM business is not a Ponzi scheme. The big difference is that a legitimate MLM (also called “network marketing”) business involves a product. The product can be anything from vitamin drinks to electronic book downloads. The distinction is that members earn their money through profits made by the company out of sales of the product. Payment is not given purely for recruiting new members.

If you are considering joining a network marketing business, “is there a product?” is the first question you should ask. If there is no product, that particular business opportunity is definitely to be avoided. The next thing to ask yourself is whether the product is worth the price being asked. If the product (or an item very similar) is readily available in the shops at a lower price, there must be a suspicion that what appears to be a business venture is in fact a pyramid scam, and sales of the product are secondary to recruitment of new members. This sort of company is also best avoided.

The way an MLM business works is that you join the company and get paid commission for all sales of the company’s product you make personally. When you recruit people into the company you will be entitled to receive a percentage of the profit on all sales made by them. Your recruits bring new members into the company and you will receive a percentage of the profit brought in by them. These levels (or “tiers”) will continue down through several levels. The actual number of levels depends upon the company but about four or five is very common.

It is easy to understand why MLM businesses get confused with pyramid schemes because, if you draw a diagram to represent how an MLM business is set up, it will look like a pyramid. Some MLM companies have diagrams which depict the arrangement more like a family tree, but the similarity to the pyramid shape is inescapable. At the top if the pyramid will be you, under you will be the people you personally recruit into the business, beneath them will be the people they have recruited, and so on until you reach the final level according to the company’s rules.

MLM Tiers Diagram Example

The reason for arranging members on these tiers is that the level of commission you receive at the top of the pyramid depends upon the position of the recruits. The pyramid diagram is the easiest way to illustrate the levels of commission you can expect to receive on sales made by people brought into the business as a direct result of your efforts.