How does Multi-Level Marketing Business Model Work?



Senior editor

Parul Saxena

Chief editor

Last updated: May 3, 2021

“Work from home & earn thousands of dollars per week!”

Have you heard about such advertisements?

Well, there are high chances that it’s from companies using a multi-level marketing business model to pitch their products or services.

Though it might sound fraudulent at times, MLM is quite a straightforward marketing approach.

Today, there are millions of people around the world building this industry swiftly. So, if you are wondering how multi-level marketing works, you’re at the right place. But before that, let’s have a quick tour of what MLM is all about.

What is Multi-Level Marketing (MLM)?

Multi-Level Marketing, sometimes referred to as Network Marketing is a business model, where distributors’ income is a sum of their own sales and percentage of the sales group they recruit.

MLM companies depend on distributors to not only sell their products but also recruit other people to become distributors below them. The more people a distributor recruits below him/her, the more money he/she makes.

The MLM business model relies mainly on a network of distributors who contribute towards the growth of a business. It involves three systematic strategies to make money:

  • Building and Management
  • Recruiting
  • Lead Generation

Besides, there are different types of network marketing business models – single-tier, two-tier, and multi-level. Here, we will see how multi-level marketing works.

Looking for Multi Level Marketing Software? Check out SoftwareSuggest’s list of the top multi level marketing software.

How does the Multi-Level Marketing Business Model work?

Network marketing is spreading like a wave across countries. You might have heard from a friend or colleague about an opportunity to make extra income without investing or will likely listen about it soon. When you listen about it for the first time, you definitely get perplexed and wonder if it is true or not.

So, before you come up with any conclusion, let us understand the working of the network marketing business model.

MLM Business Model

The multi-level marketing business model has the lowest risk of loss. Thus, it is considered one of the safest business models. However, it mainly depends on the number of participants.

MLM business model functions on different levels. The company at first hires some distributors to start the sales.

Then, it encourages them to recruit more distributors. Every distributor that they recruit and every product that he sells brings the commission to the distributors in the upline. Hence, distributors get encouraged to recruit more and more distributors. This not only increases the sales of the company but also helps them save hiring costs.

Let’s understand this with an example!

Suppose that you join as a distributor in a network marketing business in India. MLM model inspires you to recruit more distributors under you and earn some percentage from the entire sales under your tree.

There are different levels or ranks like Silver, Gold, Diamond, and similar. The higher your rank, the more money you make. So, people who enter earlier make more than those at the bottom line.

Amway, Herbalife, and LuLaRoe are some of the examples of MLM businesses.

Also, Read: 5 Things to Know Before Starting Network Marketing Business Venture

Different Stages of the Network Marketing Business Model

1. Joining the MLM Chain

An existing distributor looking to expand his network will approach you in one or the other way. Once you understand and hope to join him, you consent to agree with the contract of the principal company whose product you would be selling. Now, the distributor who recruited you will be called your sponsor.

Then, you will be given training either by the company or your sponsor regarding the product or on methods of selling it. Also, you will undergo training on how to recruit and develop your distributor network. Some or most of the companies require you to buy a starter kit in order to start sales.

Joining the MLM Chain

Also, Read: 15 Best MLM Plans for your Multi-Level Marketing Business

2. Retail Selling

Being in an MLM business requires you to focus on two essential things.

  • The first is buying a product for you and your family’s consumption. For instance, you buy products worth $100 every month, and you receive a discount of approximately 10% on the MRP. Thus, you will save $10.
  • Secondly, you can buy products for your friends or extended family and boost the sales volume. This leads to an increase in your discounts as per the slab.

3. Building Your Distributor Network

The next thing you can focus on is recruiting and developing your distributor network. Word of mouth can play a crucial role in acquiring new distributors. Once you begin talking about network marketing business to known and unknown people and encourage them to sign up as distributors, you become their sponsor.

As your network scales up, you start making extra income from the sales generated by the distributors under you.

For example, you have 5 distributors who place an order of $500 with you. You can purchase these products from your sponsor at a 20% discount. Your distributors, in turn, will get them from you at a 10% discount. Hence, you make a profit of 10% for each distributor.

As your network grows and the network under your distributors also grows, you start gaining higher discounts.

When your distributor network increase in size and you earn significant discounts, there comes a time when you get detached from your sponsor and start dealing with the principal company directly. As soon as you reach this stage, you get incentives, royalties, or bonus of specific amount/percentage as determined by the company.

Wrapping Up

Theoretically, the network marketing business model seems easier to run and more cost-effective. Nevertheless, recruiting sales agents who are excited about your company and product and share the same enthusiasm as existing agents is crucial. Ultimately, an energized and passionate workforce leads to more sales.

Moreover, nowadays, multi-level marketing software is available on the market that makes network marketing business pretty straightforward. Right from deploying a marketing strategy to streamlining the sales process, this software facilitates MLM businesses with varied features and functionalities.

If you have decided to profess your career in MLM business, all it demands is your interest and hard work. The more you invest your time and efforts, the better will be your network marketing.

Shrushti K. Chaware Works as a Digital Marketing Executive, at SoftwareSuggest. She is a Sports lover and always curious to explore new stuff. When she is not working hard at work, she can be found writing, reading or just wandering.

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