"Rich Dad" Robert Kiyosaki wrote a book about it called "The Business of the 21st Century". Warren Buffet invested $1.5 Billion in it. The largest seller of life insurance in the world uses it. The largest seller of legal services in the world uses it. 100 year old companies use it. Companies that grew to $1B in revenue in less than two years use it. What is it?
Multi-Level Marketing. Also known as Network Marketing and Direct Sales, MLM is a powerful means to build a self-directed sales and service work force that also gives those salespeople the ability to generate their own wealth and residual income while building well known brands such as Pampered Chef, Kirby, Primerica, LegalShield, Avon, MonaVie, Nikken, Mary Kay, Tupperware, USANA, Keller-Williams Realty, Amway, and many more. So, when is MLM the right distribution channel for a startup?
Customer acquisition is the key challenge for most startups. Surveys by the Direct Selling Association have shown that word of mouth is the most trusted form of advertising. Products that can benefit from the additional trust and education that come with word of mouth sales are good fits for network marketing distribution. Compensation plans can be designed to drive recruiting, training, and management of sales associates, but the products generally require solid margins and unit or monthly revenues that will justify the extra labor. The choices of compensation plans- unilevel, binary, stair-step breakaway, party plan, etc.- can be key, and generally require expert assistance. Legal review is required to assure the plan does not run afoul of state and federal guidelines, as a majority of revenues have to come from sales of product and not recruitment.
One of the criticisms of MLM structures is that they can be "pyramid schemes". The "pyramid" part is not the problem, as generally every organization ever created has been a pyramid. The "scheme" part is, as some MLM companies have built organizations without products to justify the sales organizations. So the number one criteria a company (or participant) needs to evaluate for an MLM company is if the product will sell in large quantities. Careful market research is required, and compensation plans that pay more for product sales than recruitment are more likely to avoid the ire of the FTC. Another potential problem lies in claims made for products, especially nutritional products, as these can lead to problems with the FDA.
With careful planning, inspirational leadership, the right products, and a focus on thorough training and monitoring, network marketing can be a powerful engine for growth. There are many websites that offer MLM advice, among them are mlmlegal.com, mlmwatchdog.com and dsa.org.
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