Probably the biggest impediment to a new distributor's rise in a multi-level marketing program is the difficulty he or she has in both understanding, and in explaining multi-level marketing to prospects. The biggest reason for this is the tendency for people to complicate things so they can use charts and graphs to illustrate them. Let's simplify, so everybody can understand.
Conventional Marketing: In conventional marketing, the manufacturer hires a factory rep to sell to distributors. This rep gets a commission (off the top, from the manufacturer) that usually amounts to about 5% of the retail value, while selling to the distributor in large quantities. This rep does not have to buy the product, since he is working for the manufacturer.
The distributors he sells to buy in quantity (usually a gross -- 144 pieces or more), usually getting a discount of from 60% to 70% off retail.
This distributor sells to retail stores, giving them from 25% to 40% off retail, out of his discount. They buy smaller quantities, usually 12 pieces minimum.
Just don't confuse it with the "money games" and "pyramid schemes" that proliferate on the Internet and in mail order. They don't work, are in most cases illegal, and just cost you money.
- Based On Volume: Each product buyer in this string (distributor, store) pays a price based on the total volume purchased. The smaller the volume, the smaller the percentage of the retail price they get to keep.
- Group Purchases: Similarly, in network marketing, each person earns a percentage of the retail price based on their total product purchase. But while the conventional retailers and distributors have to buy it all at once, in network marketing, you don't. And this is the key to why "the little guy" can get started for a very small investment and still make a lot of money after a while.
Since all product purchases by you and those you've sponsored are grouped over a specific period (usually 30 days), you are paid on that total, even if your individual product purchases involved only one unit at a time. That's the major difference between network marketing and conventional marketing.
- Retail Sales: Under an illegal pyramid scheme, the only product is usually "the right" to sell the "sales program" to other suckers while making a profit from their "sign-up fees." In real multi-level marketing, you don't make a profit from signing people up. Your only profit comes from selling the product. It follows then, that you must sell some product yourself, along with that sold by your distributors, to make this thing work. If you have a product that is good, that will not be hard to do.
- Customer Prospecting: With most MLM products, your best prospects for new distributors are your retail customers who decide they want to make money selling a product they've already shown they like, by buying it themselves at retail. You just have to let them know the opportunity is there, is affordable, and doable.
- MLM Is "Multiplying Yourself": Since you can't usually make the "big money" most people coming into MLM are after through one-to-one retail selling, it follows that you must multiply your efforts.
- Sponsor Others: You can do this by recruiting and sponsoring other people to help you sell the product, while buying it through you. This way, everybody you recruit is not only making a profit for themselves, they're also making money for you by increasing your total volume of sales.
- Building A Marketing Group: As you sponsor more and more people, you begin to build a marketing group that becomes responsible for more and more sales volume, causing your own profit to increase while each distributor is also making a profit.
- "Sliding Scale" Refunds: Since most MLM program profits are paid on a sliding scale, meaning the more sales volume, the higher percentage of the money you get to keep as profit, the more you and your group sell, the higher the percentage each is paid on his or her sales.
- The Money Flows Through You: Now here's one of the most important things about MLM. When anyone in your group buys a product, that purchase is not only counted as part of that person's sales volume, it is also counted as part of yours. That means you profit from every sale made by anybody in your marketing group, including yourself.
- You Keep The Difference: When this happens, your distributor makes a profit, based on a lower sales volume than yours, and so makes a smaller percentage of profit than you do. This is because with the sliding scale mentioned above, his/her refund or bonus is smaller.
For instance: a distributor selling $300 worth in some plans will be paid a refund (in addition to his or her retail profit collected from the customer at the time of the sale) of 6% of the retail value. You, as the sponsor, who may have a volume of $2,500 or more, based on sales volume from many distributors (whose sales volume also goes through you), make 18% refund on the same dollars.
The difference between the distributor's 6% refund and your 18% refund is 12%. And you get to keep this 12% as your profit on that distributor's sales volume. Add this money up on the sales volume of everyone in your group, and it can be big bucks. Obviously, the key to making a lot of money is in having as many people in your group as possible, and helping them to sell as much as they can.
Some would say that this is unfair to the distributor. Not so, because each distributor has the same opportunity to rise to the same percentage bracket as you have, and beyond, simply by sponsoring and training more people to sell the products.
- "Breakaway:" An important factor in real MLM is the breakaway point. This is the point at which the percentage of the retail price that is paid to a distributor equals the top percentage, which is what you will by then be earning. This is what separates this from a pyramid scheme. What happens then? The answer is simple. This distributor and his or her group "break away" and become a separate group from yours. At this point, you will no longer be responsible for supplying and training members of this group. This distributor is now considered to have been sufficiently trained by you to be able now to go it alone. This distributor now will buy direct from the company, and will be personally responsible for him or herself and those in his or her group.
- Overrides: But you will still be rewarded for this training and supply. When this happens, the company starts paying you an "override" on this group's total volume at a smaller percentage than you made on each individual's volume when they were a direct part of your group. But this isn't a bad thing, because as more and more of your distributors break away -- and they will -- and become equal to you as a "Direct Distributor" or whatever your company calls them, the company starts increasing the percentage you are paid in overrides. These overrides can then add up to really big bucks, and these bucks are the kind that you continue to make, even if you stop working.
- Retirement: At this point in most plans), you can retire if you wish, and still make continuing profits on the work of those you have recruited, sponsored, and trained to themselves earn money. You won't continue to make money on your own personal group of individually sponsored distributors at this point, since you won't be working with them if you are retired. But if you have enough "breakaways" contributing to your income, this amount will be small in comparison.
- More And More Profits: If you don't retire, and your personally sponsored distributors continue to break away, most companies keep on increasing the percentage they pay you, the more breakaways you have sponsored. Many people, in many different companies, can earn as much as $500,000.00 a year -- or even more -- this way.
- "Dependable Money": And this is "dependable money" because most reputable MLM companies, since they operate on a cash basis with their distributors, are also able to operate this way with their suppliers. This means they don't usually get into the money problems often faced by many conventional companies who find it necessary to offer credit terms to most of their customers who sometimes don't pay.
- MLM Fastest-Growing: MLM is not some back alley con game. It's one of the fastest growing segments of the market. Many MLM companies are "Fortune 500" companies and many formerly conventional marketers are going into network marketing in a big way. If you want to make money, look MLM over carefully. It could just be the medium that will change your life. It has made millionaires out of many who never expected it. It can do the same for you if you work at it.