“I’m looking for a new career from home and I keep hearing about network marketing and MLM. What is an MLM company anyway and how do they profit?”
Hey, good day folks, I’m André Givogue, your friendly host here for CareerFH!
So, “what is an MLM company you ask?” It quite simple actually, MLM stands for multi-level marketing also known as network marketing which falls under the direct sales category (like “Tupperware” except Tupperware is a single level, not multi level.).
All companies, whether traditional or direct sales have to move products in order to stay in business. When I say move products I mean sell products. Traditional companies chose the route of advertising, going through national distributors, regional distributors and finally local distributors before it hits the store shelves. All of these different “steps” take a portion of the profit which is then factored into the cost.
Direct sales companies instead chose to go straight from the company to the client going through “representatives”, “distributors” or “party hosts”. Almost each company has their own lingo. Essentially they save the cost of advertising and branding which is a huge chunk of the pie. Instead they chose to put those profit into better quality products, research or into savings for the customer.
Because these companies have less overhead and less employees, this is another source of significant amount of savings. Reps only get paid a percentage commission when they sell products which is performance based. In return, reps which can literally be any body, have the potential to make huge amounts of profits if they sell a lot.
Hopefully that answers the first part of the questions: “What is an MLM company?”
What Is An MLM Company And How Do They Profit Part 2
In the previous section you’ve learn about “what is an mlm company” and now let’s focus on how they profit.
Here’s the original question that I was asked: “How do MLM Companies profit when they pay the members on the basis of the number of members that join the network; and they pay them big?”
I found that to be an excellent question since not everybody new understands how it works. There’s a rational explanation for this and here’s how it works.
First of all, companies never pay for a new recruit to join in. If that were the case, that would be considered an illegal pyramid scheme as the flow of money is from recruiting (which is bad), so if you see this anywhere, it should be a red flag and run away from that opportunity.
Legitimate companies pay people based on the product or services they sold and sometimes the companies throws in bonuses as incentives.
Let’s say that a company pays out 60% of all revenues. That means on every product or service sold they collect 40% and only the 60% is divided within the commission structure.
I’ve also seen 100% pay out commissions but when you scrutinize the commission plan carefully you see you get 100% commission of the product or service however you must pay a “reseller fee” of either $25 or $100 per month.
So this can be good and bad depending on how much volume you personally sale. MLM is a business at the end of the day, it has to make money in order to stay in business.
Compare it to real estate, some brokerage will offer their agent a 70% – 30% commission split for every house they sale with no desk fees (or office fees), that means the agent keeps 70% and the brokerage keeps 30%.
Again, depending on how much volume you plan on selling one is better than the other. Option A in this case would be better for a beginner as there is less risk involved and option B would be better for a “pro” who sells a lot of house so the 2k per month is just a business expense yet he still retains most the commissions from his sales.
When the MLM companies get the money, the split goes 40% to the company and the remaining 60% it never surpasses the total revenues meaning, the company never pays above and beyond 100%.
This was simplified for illustration purposes only, commissions structures are more complex than that but at the end of the day, they are all properly balanced so they never payout more than their allowable commissions’ budget.
I hope this helps understand the industry a little better. Click here on the link to learn more about the various types of career from home.
What about you, how long have you been looking to start a new career from home?
Share your thoughts and comments down below and thanks for watching this episode CareerFH – Start Your Career From Home Today!
Like always; have an awesome day, cheers everybody!
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