In the business world, no terms is more misunderstood than multi level marketing. It is an especially tricky area for entrepreneurs looking for an entry into the business world. There is a lot of misinformation out there about multi level marketing, and following the wrong advice could be costly, as it could scare you away from what is really a great business opportunity or it could lead you to invest in what turns out to be a scam. Your best bet is to understand what multi level marketing really is – and what it isn’t – so you can protect yourself and make an informed decision about your business opportunities.

First, consider a simple definition of multi level marketing. In essence, multi level marketing is not unlike a franchise system, except agents involved in multi level marketing generally operate outside of a particular location – like a chain restaurant – and instead do roving sales. In multi level marketing, a parent company has a group of products, and they hire individual representatives, “down stream” as it is typically referred to, to go out and sell those products. Often, the down stream reps purchase the products that the sell from the parent company, although in some cases they can receive stock up front and then split the profits. Down stream reps do not receive any kind of base salary. Their income instead comes in the form of sales.

You have almost certainly dealt with multi level marketing companies without even realizing it. If you have ever attended a party where a host gave you a spiel about kitchen equipment, make-up, lingerie, jewelry or some other kind of product, and then you purchased the product from the host, then you have seen multi level marketing in action. Typically, the people who host these parties receive a small amount of sample stock to show their guests, and then they collect orders, pass those on to the parent company and receive a portion of the profits from sales at the parties they have hosted. The share they receive and whether or not they had to pay for their samples differs from company to company.

Although many multi level marketing programs are entirely legitimate, there are ways these set ups can be exploitative. Most of these programs provide some kind of incentive for people to recruit new reps, but that opens the door for a pyramid scheme to develop. In a pyramid scheme, everyone makes their money by signing up new representatives to the company rather than for selling any products. If you are approached with a scheme that requires you to sign up new representatives and to get them to pay a join up fee, then chances are that you are dealing with an illegitimate multi level marketing plan that not only could end up costing you lost of money but that could also land you in jail.

If you keep an eye out for that important red flag, however, multi level marketing programs can be profitable and reliable ways for good sales people to make money.


John Ditta
President
DittaMarketing