Multi-level marketing

Multi-level marketing is a business model where salespeople such as sales consultants, distributors, and even franchisees and independent owners work in harmony to increase sales of a product, on a commission basis. This is very similar to a franchise arrangement where product sales depend on the combined effort of each franchisee and regional manager. There are multiple levels of people receiving commission. There are usually seven or more levels. Multilevel marketing is basically a combination of franchising and direct marketing.

This concept started in the 1980s when most companies started dealing with warehousing and distribution issues and started compensating all the individuals involved. This increased every member's interest in sales promotion due to the opportunity to earn rewards and since then multi-level marketing companies have taken on the responsibility of receiving orders, shipping goods and paying revenue. Things have become easier with the move to the Internet. Product promotion, advertising and sales were done online and hence, the entire process began to be known as online MLM.

There are many MLM compensation plans. Under one-level or ladder breakout plans, there are two types of participating distributors: managers and non-managers. According to the matrix plans, the width of each level in the distributor group is organized. In binary plans, the width limit of each level is two feet. The commission was paid when both legs reached a specific target. In an elevator system, distributors pay splits after paying a certain number of units.

Commissions are paid in two ways, the first says that the commission is paid only if the product is sold and the second involves paying the commission even if the customer just signs up, it does not require the customer to buy anything. Because of the second method, illegal MLM or illegal pyramiding began to emerge. Intermediary members used to make sign-ups for proxy clients to get commission, and also used to entice participants to buy more products than they could sell. But since most of these companies present themselves as legal, precautions must be taken. It is better to deal with companies that follow the first commission method, where making a sale is mandatory and not just attracting customers. Here money is not paid for client registration at all. MLM marketing is practiced throughout the United States and in hundreds of other countries.

In 1979, Amway Corporation was accused of price gouging. They exaggerated sales claims, while their distributors sold the products at a lower price. Then, the FTC warned all multi-level companies whose commission is based on recruitment, not sales. In 2006, all business sellers including MLM organizations were required to provide customers with comprehensive information, according to the Business Opportunity Rule introduced by the Federal Trade Commission, to protect them from deception. Before that, many incentive programs began that concealed the truth. Such programs were known as cult programs.

Laws have become stronger. As a measure, the pyramid scheme has been banned in most countries. All newly hired sales representatives must bear the cost of initial training and materials. Rather, they have to purchase a large amount of inventory. To test the legitimacy of MLM marketing, the 70% rule is implemented. Members are prevented from overloading in order to increase their commission. Only when seventy percent of the inventory is sold can an order be placed for new materials.