What is Multi Level Marketing? Multi level marketing is known as network marketing. This is a kind of business where franchising and direct selling are combined. This business makes a person associated to a company in an independent transaction approach. It is an approach where the company creates a contractual relationship to the person who wants to expand his business.
Are they Ponzi schemes?
The members make their earnings based on the sales they have reached in that particular product or service. It also includes the sales of the person that they have recruited to join the business. Most of the time the individual who has recruited more members and provided a good sales output on the product compensates higher because of the effort to transact in two different fields.
There are “pyramid schemes” or Ponzi schemes, which are considered illegal. Most people associate multi-level marketing to these kinds of schemes because they also recognize themselves to be a legitimate networking business. The bad image brought up by these schemes leads many to prefer to use their names for their businesses as “home-based business franchising” or “affiliate marketing”.
Changes in the industry
Commissions are earned in the process of selling a particular product or service in a legitimate network marketing. There can be no earnings in what they call a “sign-up fee” or for just recruiting yourself alone. This kind of marketing is always criticized because of the questionable recruitment process where they get their revenue and profit. They get their sales from members and new members, which are considered the end-users of the product.
These criticisms led to major changes in multi-level marketing in the early 1980s. Many companies have started to allow their members to concentrate only on marketing, and not on distributing or stocking the product. Most multi-level marketing firms nowadays perform as fulfillment firms by taking the tasks of shipping the product. They then pay the commissions and taking orders from their clients.
Many people who are victims of the illegal schemes in multi-level marketing are required to buy expensive products. Most of these schemes do not last long because most of the sales are not easily resold.
This post has been kindly provided by Expert Comptable Angers