Multilevel Marketing: What It Is & How It Works [2024]

50 million people…

That’s how many are involved in direct sales (or multilevel marketing) in the United States - either as a seller, or as a consumer of direct sales products.

Needless to say, it’s a booming industry.

But what "multilevel marketing" actually mean? And how can a direct seller be successful?

We’ve interacted with thousands of multilevel marketing retailers over the years, so here we’ll lay out what multilevel marketing is, whether or not it's legitimate, and how you can be successful with it.

What Is Multilevel Marketing?

Multilevel marketing (MLM) is a business model that utilizes direct selling and recruitment of direct sellers in order to promote products.

"Direct selling" refers to purchasing products from a company in order to sell them directly to consumers, without the “middleman” of a retail outlet.

The direct seller then receives a commission based on the sales.

According to Wikipedia, there are 2 types of direct selling: single-level and multi-level.

In single-level marketing, the direct seller’s commission is based entirely on their sales.

In multi-level marketing, commission is based both on the seller’s personal sales as well as the sales of other sellers whom they have recruited.

Now, many direct sales companies get a lot of flack for being "pyramid schemes" due to their multilevel marketing tactics – they get so much pushback that many direct sellers will refrain from identifying with this category due to the negative connotations associated with it.

However, multilevel marketing and direct selling in general can be a legitimate business strategy, if done ethically and legally.

What Are the Positives and Dangers of Multilevel Marketing?

Multilevel marketing companies are very popular and also very controversial.

Why?

Because there are both positives and dangers inherent in the model.

First, let's go over some of the dangers...

• No training or experience is usually needed to become a retailer for a multilevel marketing company - which can sometimes lead to unwise business decisions with no protections in regards to the consequences of those decistions
• The realistic earning potential for most retailers often isn't very lucrative
• Recruiting other retailers to be sellers is often one of the easiest paths to be successful, which can give the process "pyramid scheme"-like qualities and create a culture of pressure to recruit rather than to sell
• Since many multilevel marketing companies require retailers to pay regular fees and/or have a running inventory, many retailers lose money if they aren't able to sell enough inventory to recoup their expenses - and then they find themselves stuck with a lot of unneeded inventory

Although those dangers are real and have impacted many retailers over the years, multilevel marketing companies do have a lot of positives going for them, such as...

• These companies are usually centered around a highly desirable product (think Tupperware) that retailers can receive at highly discounted prices - in fact, many people become retailers simply for the discounted products
• The barrier to entry is often very low, so it provides a business opportunity to many people who otherwise may find it difficult to start a business
• The sales process often relies heavily on word-of-mouth marketing, which is regularly acknowledged to be one of the most effective marketing methods out there
• These companies often give retailers a built-in support system and community for support in their business

Is Multilevel Marketing a Pyramid Scheme?

Multilevel marketing does operate on a "pyramid" structure with people towards the top making the most money and doing the least "dirty work." But this does not make the business model a pyramid scheme - in reality, most businesses operate on a similar pyramid-like structure with people on the top making the most money and taking on more of a managerial role. It's just the nature of business.

A pyramid scheme, however, is not a legitimate business. It's just people recruiting other people and paying into the "business" without any desirable product or service behind it all - and with minimal chance for profit.

Legitimate multilevel marketing companies, on the other hand, are typically centered on a product that is highly desirable to its market. Even if a lot of money can be made in recruiting, it is possible to make money simply by selling the product.

So if questioning whether a multilevel marketing company is legitimate, one thing to ask is whether or not you (and others) actually love the product they sell. (Or whether they sell any real product at all!)

You should also ask how much (if any) inventory the company requires you to purchase on a regular basis, and whether you can legitimately sell the inventory you're taking in.

Should I Get Involved in a Multilevel Marketing Company? Some Honest Advice...

I've been involved in 2 multilevel marketing companies in the past.

I know that a lot of people speak out against MLMs as manipulative and a cause of many people losing money. However, my experience has been overall positive.

My wife and I got involved in these companies because we loved their products and wanted a discount. Then we decided to try our hand at selling, and made some money (not a lot, but some).

Here's what I suggest if you're thinking about getting into a multilevel marketing company...

• Make sure you really love the product, to make it more worth it to get the wholesale pricing
• If they require you to have inventory (which not every company does), make sure you can feasibly sell that inventory
• Be realistic about the amount of money you'll be able to make - if you're not doing it full time, you probably won't make very much, and while full time works for some, there's still no guarantee that you'll make a great income
• Understand that although recruiting people is often one of the easiest ways to make more money, don't allow yourself to be pressured into things you're not comfortable with - if you don't want to recruit people, then don't
• Don't make unwise decisions - don't spend your money lavishly on inventory or on opulent lifestyles that you can't really afford

In my opinion, multilevel marketing opportunities give many people a simple way to get free or discounted products and make a little bit of money on the side. Just don't get pushed into unwise choices along the way.

What Does the Multilevel Marketing Process Look Like?

Getting started with a legitimate multilevel marketing company typically involves the following:

1. Someone interested in selling applies to be an independent seller (often called a “consultant” or a more descriptive word related to the product, such as “stylist”)
2. The independent seller must typically pay a fee to purchase a “starter kit” of the products they’re trying to sell
3. Once their application is approved, the independent seller can purchase products from the company at a wholesale price, and can then mark up and sell those products directly to customers in order to receive commission
   • Alternatively, many multilevel marketing companies will allow independent sellers to simply promote the products online, without needing to purchase and physically sell inventory
   • Depending on the company, the seller may or may not also be required to purchase products from the company on a regular basis and/or pay a fee in order to retain their status as a seller

As alluded to previously, most direct sales companies also encourage their independent sellers to recruit others to become sellers for the company as well.

The recruiting seller can then earn commissions from the sales of the people they have recruited (these recruits are called the recruiter’s “downline”), in addition to commissions from their own personal sales.

How Does Selling Work in a Multilevel Marketing Structure?

Direct sellers in a multilevel marketing company typically have a lot of freedom in how they can go about selling the company’s products.

Here are some of the strategies that direct sellers often employ.

In-Home Parties

Although falling out of style within many multilevel marketing companies, running “parties” has historically been the stereotypical sales strategy of the direct sales industry as a whole.

These “parties” are sales events presented as fun social gatherings including food, games, and a product demonstration.

Retailers may host their own parties within their home or another local location. Or they may recruit an interested customer (or prospect) to host a party in their own home, in exchange for free or discounted products offered by the company or by the seller.

These party hosts will be in charge of inviting people within their own sphere of influence, allowing the retailer's product exposure to expand to new groups for each new party hosted.

When running these parties, retailers are typically encouraged to try to get at least 1 additional party booking from one of the party attendees, so that they can continue to get a steady flow of business exposure.

Online Parties

Playing off the in-home party strategy, online parties are becoming more dominant for direct sellers trying to promote their product.

The concept is similar to an in-home party, except that the “party” is hosted entirely online, often via a social media platform such as Facebook.

Though there are variations of this format, typically, the seller posts a series of engaging and/or informational posts in real time within a party group or event. The seller may also stream some kind of live video during the appointed party time.

Friends, family, and acquaintances that the party host has invited to the party page see and interact with the posts and may or may not make a purchase at the conclusion of the party.

As with in-home parties, the retailer tries to encourage someone participating in the party to agree to host their own party in the future, so that the business model can continue.

A variation of this method that's becoming popular is to post video demonstrations of the product that partygoers can view at their own leisure.

Live Sales

Many direct sellers host live sales on social platforms such as Facebook.

With a live sale, the retailer does a live video (often outside of the context of a party), in which they interact with the viewers, play games, and go through a demonstration of the product.

Live sales are particularly popular as a means to show new inventory, among retailers that receive new inventory regularly.

Currently, this is a major (if not the major) source of sales for many direct sellers in multilevel marketing companies.

Sending text messages to prospects and former customers using an SMS platform like Mobile Text Alerts is one of the ways retailers use to drive more attendance to these live videos, so that they can get more sales out of them.

Direct sellers have learned that they can’t rely on the social media algorithms to get people on their live videos, so texting, (with its 98% read rate), has proven to be an effective way to get more people to show up.

Other Direct Sales Strategies

Other direct sales strategies could include:

• Managing a social media page/group in which the retailer engages previous customers or prospects regularly
• Setting up booths at community events
• Doing sales demonstrations at public locations, such as places of business, schools, retirement homes, etc.
• Doing door-to-door sales
• Any other way to promote a product on an personal basis

What Are Some Examples of Multilevel Marketing Companies?

Some well-known examples of companies that employ multilevel marketing as part of their business strategy include:

• Amway
• Avon
• Mary Kay
• LuLaRoe
• Paparazzi Accessories
• Tupperware
• Doterra
• Young Living
• Pampered Chef
• Color Street
• PaperPie
• Norwex

These and other companies like them typically employ a combination of single-level direct sales marketing and multilevel marketing strategies to promote and sell their products.

What Are Some Tips on Being Successful in Multilevel Marketing?

With multilevel marketing, it can be quite difficult to see much success, because markets are often saturated - and it’s up to sellers to find their own customers using their own limited resources.

This can make it difficult to get the amount of sales needed in order to make good money.

So it’s not a “get rich quick” strategy. There is a lot of work involved in order to be successful.

However, most direct sales companies have a low-cost barrier to entry, little commitment, and little risk, which opens up the door for many individuals who would not otherwise have the opportunity to pursue their own business.

And many direct sellers do find at least some success.

So if you think direct selling may be something you want to try, here are some tips to help you find success as a direct seller.

1. Understand Your Product

As a direct seller (often called “consultant,”) you’re supposed to be an expert in the product you’re selling.

So get to know all of the features, benefits, and uses of your product; this will allow you to be well-prepared when it comes time for questions, explanations, and demonstrations.

In addition, make sure you’re aware of all the counter-arguments against your product, and that you have a convincing rebuttal.

Keep up-to-date with new products released by your company, so that you know how to promote those new products to your customers.

2. Understand Your Customers

You must not only understand your product; you must understand your customers – what they need, what they want, and how your product helps them.

Explain to them how your product solves whatever problem they have, or whatever goal they’re trying to achieve.

Having a thorough understanding of your customers will help you know how to talk to them, how to appeal to them, and how to approach them.

(For example, if you know your customers are primarily younger, you’ll know that you should probably reach out to them via texting and social media more so than email or phone calls.)

3. Understand Your Overarching Goals

Your direct sales business won’t go very far if you don’t have a plan.

Before even getting started, think about why you’re pursuing your business and what you’re trying to achieve.

There are a few different levels of direct sellers:

• Many people become direct sellers simply so that they can get the company’s product at a wholesale price. This is a totally legitimate and good reason to sign up as a direct seller! You’ll just have to acknowledge that you won’t actually make any money; in fact, you’ll likely lose money, because you’ll probably be purchasing the product for yourself on the regular.
• Many people become direct sellers so that they can get a little bit of extra income on the side. Just realize that it still takes a lot of work upfront in order to get your business to the point at which you make money. However, once you build a customer base that keeps returning, you may find that you get some side income without much effort (after a period of time).
• Some people want to make direct selling a full-time job. It’s possible to make good money with direct sales in multilevel marketing companies, but generally speaking, the easiest way to do this is to incorporate recruiting into your selling process.

Your definition of “success” will look different depending on which one of those describes you.

So you have to think about what you ultimately want to get out of direct selling, and then you’ll be able to plan the steps to take in order to get you there.

4. Set Specific Goals with S.M.A.R.T. Objectives

Once you have your overarching goals established, setting more specific and actionable goals will help move you toward success.

To ensure that your goals are attainable and achievable, use the acronym S.M.A.R.T.

This acronym stands for:

• Specific: don’t be too vague when describing your goals
• Measurable: make sure your goals are easily measurable (for example, a goal could be: “I want to have $1,000 in sales by the end of October”)
• Achievable: your goals should challenge you, but not be too out-of-reach
• Relevant: make sure your goals are actually an indicator of success (for example, relating your goal to how much inventory you purchase from your company may not actually be a relevant step toward success)
• Time-bound: put a specific timeline to your goals

Since these objectives will be the building blocks of your success in direct sales, make sure each one is clear and written down to provide you with a roadmap to follow.

Focusing on one goal at a time helps break down larger objectives into smaller tasks and makes them easier to accomplish.

5. Use a Variety of Channels for Prospecting and Selling

To maximize your success in a multilevel marketing company, it’s important to stay active and take advantage of a variety of prospecting and selling channels.

From online to offline, through word-of-mouth or referrals – there are numerous ways to find new potential customers.

Depending on the products and services you sell, consider making use of social media, attending local events, utilizing paid advertising campaigns, marketing via email, re-engaging old contacts, hosting webinars and seminars, and/or creating content for a blog.

6. Create an Effective Pitch That Highlights the Benefits of Your Product

Any retailer, direct or not, needs a good pitch.

The word “pitch” may sound scary, but it just refers to a “canned response” (of sorts) that you are ready to present at any given moment.

Or, put more simply, your pitch is you telling people why they should be interested in your product.

An effective direct sales pitch should focus on the benefits that you offer to your current or potential customers. That way, they understand how your product can bring value to them personally.

Don’t make it about you – make it about them.

Highlighting the value of your product should be a priority in order to ensure that potential customers will make an informed decision.

Lastly, your sales message should specifically emphasize the unique selling points – advantages associated with using your product over others. (This concept goes back to the “Understand Your Product” and “Understand Your Customers” points above.)

7. Follow Up With All Leads and Customers to Foster Relationships

In case you’re new to business, a sales “lead” is essentially someone who has expressed any level of interest in your product, but has not yet made a purchase.

Whether you talked to them in person and they had some questions, or they commented on something you posted on social media, or they attended one of your online parties…

On some level they were interested in what you had to say, but for one reason or another they didn’t yet take the plunge into becoming a customer.

Now, it’s important to remember that direct sales isn’t a one-time pitch. In fact, it would be abnormal for someone to be willing to purchase from you after just a single exposure to your product.

And even if they are already a customer, you can’t expect them to come flocking back to you again without any hesitation.

There’s a marketing principle called “The Rule of 7” which states that people must hear a marketing message 7 times before they will actually purchase.

And that’s just a rule of thumb – in some cases, it may be 10 or 20 or even 50 times.

The point is that following up with people is important.

Obviously, you don’t want to be pushy and salesy, but gently following up with people (in a helpful way) will help keep your product top of mind. You’ll be able to nurture relationships, so that you can build long-term connections with people.

The more people know you and are connected to you, the more likely they will be to give you repeat business.

This kind of follow-up can be done through texting, email, social media, and even phone calls.

8. Use Texting

Don’t be afraid to text!

As mentioned previously, texts are almost always read, and texting has become the primary method of communication for many (if not most) people.

Plus, texting, with its more personal approach than other business communication channels, fits in with the personal nature of direct selling.

People will see your texts, and they’ll engage with them (unlike an email or social media post, which they’ll ignore).

So texting is an effective way for direct sellers to drive attendance to their live sales or parties, to send out promotions, or to provide personal customer service.

Get a free account to try texting out for yourself!

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With all of the above info in mind, you’re ready to venture into the world of multilevel marketing.

So if you think it’s something you want to do, then give it a shot – and happy selling!