MLM (Multi-Level Marketing) is a business model with many hypes and controversies. Most aspiring entrepreneurs adopt and discard it without making a dime.
Well, succeeding in business in 2022 and beyond is not supposed to be easy. And add to it, loads of misguidance floating on the internet. So the question is whether you can be successful in MLM with the correct guidance of network marketing.
See, no one can guarantee you success in any area of life. But the right advice can make all the difference if your patience and determination are high.
So let us help you understand everything about MLM through this blog. Even if you are unsure of starting something similar to this popular business model, please read till the end of the article. Then you can decide if it suits your long-term interests.
Let us begin!
Looking for MLM Software? Check out SoftwareSuggest’s list of the best MLM software solutions.
What is an MLM Business?
MLM, also known as network marketing, is a business model used by companies to encourage their distributors (independent business owners) to recruit others into the business. Thus, it forms a downline.
Here is a schematic diagram showing a downline:
Many people term MLM business as a controversial marketing strategy or business practice. But it is further from the truth, and you will find out more about how to start MLM business as you read further.
How does an MLM Business Model Work?
The MLM business model looks quite complicated, but it is simple. Independent business owners recruit others using common sales tactics. They usually consist of one or more of the following taglines:
- Start your own business.
- Achieve financial freedom.
- Be your boss.
People who start MLM business make money in one of the following ways:
- Earning a commission from sales made by the independent business owner.
- Earning a commission from people who started their own business under them.
Every individual involved in an MLM business is a business owner and may have to pay registration fees to join the network. It is why people are skeptical about the legitimacy of MLM-based companies.
Is MLM a Legitimate Business Model?
Let us break the common preconceived notion that MLM business is some scam. We will not do so by sugarcoating the benefits of the business model. But you can read through the following facts, figures, and insights and then think about the legitimacy.
We will divide the data into three subsections for clarity purposes:
Country-wise stats and insights of MLM business
Figure: Top 5 countries based on direct selling revenue (2019-2020)
Figure: Top 10 markets for MLM business
Here are some insights regarding the above two illustrations:
- In 2020, the MLM industry made $179.3 billion in retail sales.
- Total global sales grew 2.3% YoY (year-over-year).
- 47 out of the 70 markets for MLM business reported positive retail sales growth.
- The top ten markets accounted for 78.4% of global retail sales of the network marketing industry.
Company-wise stats and insights of MLM business
- The first MLM company was the Southwestern Company, established in 1855. It was renamed Southwestern Advantage and generated revenues of $148 million in 2021.
- 68 percent of the top 100 MLM companies recorded a positive revenue growth rate.
- The top 3 MLM companies based on 2020 revenue are Amway, Natura Cosmeticos, and Herbalife.
- One out of every five homes in the USA owns an Amway product. Amway employs over 1,000,000 business owners across 100+ countries globally. It had annual revenues of 8.5 billion USD in 2020 and holds the first position in top direct selling companies for the eighth consecutive year. On average, an Independent Business Owner (IBO) at Amway earned $628 in the US in 2020.
- Natura Cosmeticos generated annual revenues of $7.16 billion in 2020 and has the second position in top-earning direct selling companies. Its growth rate was up 96% as compared to 2019. Women hold 48 percent of leadership positions in Natura.
- The annual revenue of Herbalife grew by 14 percent to $5.54 billion in 2020. Approximately 783,000 of its members became sales leaders, and the company has a retention rate of 67.9 percent for its sales leaders.
- 8 MLM companies achieved the DSN CCR Platinum status for the best customer service. You can see them in the following image:
- Similarly, four companies achieved the DSN CCR Gold status:
Distributor-wise stats and insights of MLM business
Distributors or independent business owners are the salesforces of the MLM industry. Let us understand their influence on expediting the sales of MLM products and services across the globe.
- The direct selling industry had 125.4 million people as independent representatives and distributors in 2020. The number continues to grow as you are reading the blog!
- The global salesforce of the MLM industry grew 4.3% YoY.
- In the UK, over 563,000 people were involved in network marketing pre-Covid. In 2020, there was an increase of 46.4 percent in distributors.
- Canada had 1.39 million independent business owners in 2020, up by 20% from 2019.
The following image shows the motivation of distributors across the different continents:
Source: epixelmpmsoftware.com
Couples as Distributors: An Emerging Trend in MLM Business
A study of the top 100 earners in the MLM industry found an interesting fact. A couple can acquire leads of both genders and possibly recruit them. Flexible timings, good understanding, and other factors make couples good distributors. Eventually, they will drive revenue, and companies like Amway, Jeunesse, and Herbalife lead in this category.
So it was exciting to see that the MLM industry is competitive and full of opportunities. The question for you is if you also want to join the league of independent business owners. The next section of the blog will show you how to build a network marketing business from scratch.
(Source for all data mentioned in this section: Top 100+ MLM & Network Marketing Industry Statistics & Facts 2021)
How to Build an MLM Business?
The MLM business model is different, and traditional startup blueprints will not help you to a great extent. If you want to perfect the unique elements and nuances of MLM, use our 10-step checklist to get started and eventually build your path to success.
1. Pick your product or service
Your first step should be to identify, research, and test potential products and services. The product should appeal to buyers and also inspire distributors to sell further.
Search for products or services with a USP (Unique Selling Proposition) in the market or are distinct from similar offerings. Test the interest levels of your target customers and potential distributors. Besides, try to find out what they will pay for such solutions. You can shortlist products or services having a 5X margin over your investment.
For MLM businesses, the product or service should have a strong customer demand so that representatives can have sales success. It means your MLM company will generate profits from retail sales to consumers and not only representative recruitment.
Take the help of digital marketing service to find out about the above data.
2. Formulate a detailed and realistic business plan
Do not proceed without a written business plan. It will give you clarity on how to start a multi-level marketing company. You can also define your business goals, purpose, and vision in the plan. And, if you need external funding, a good business plan can attract potential investors.
Here are a few key points your MLM business plan should include:
- Business objectives: You can enlist challenging goals that should be realistic and achievable. Do more research about your niche to define the correct business objectives.
- A market analysis: Clarify your market niche in terms of both size and opportunities. Create sample profiles of both your target customers as well as key competitors. Compile and analyze the data to identify where your products and services can fit in the market. Also, check if there are any potential barriers.
- A profit and loss forecast: Based on your financial goals, market research, and product and operating costs, estimate your anticipated revenues, profits, and loss for the first five years. Then create a cash flow analysis to show how money flows into and out of your business during a specific time.
- Sales and marketing plans: Get specific about how you intend to promote your products and services to buyers. At this stage, you can determine how many distributors you may need at different stages of business. You can also make a rough estimate of their sales targets. Consequently, map out your marketing strategy, website design, and the required budget.
The above list is not exhaustive. You can consult your marketing team to add more points to the business plan.
3. Create a mutually-beneficial compensation plan
You have picked a product or service and also documented a business plan. Now, it is time to outline your MLM company’s compensation plan. It will serve as the foundation of your direct selling business.
A compensation plan should define the terms and conditions for earning income, the commission on direct sales, and the override bonus earned on downline product sales.
Balance your compensation plan so that it is a win-win for all parties involved. It should be reasonable, attractive to distributors, and profitable. You can neither pay too much nor too little to your salesforce.
We recommend using good strategic planning software to create a well-balanced compensation plan.
4. Secure funds for your MLM business
There is no point in asking how to start a network marketing company if you cannot secure funds. You have two options to fund your MLM business:
- Debt financing: You apply and take an interest-bearing loan from a credit union, bank, or an NBFC (Non-banking Financial Institution.
- Equity financing: Company owners can sell ownership in the company in exchange for cash. You can raise such money from many sources, including family and friends, investors, or an initial public offering (IPO).
Many MLMs use a mixture of debt and equity financing, depending on their business needs, expansion initiatives, and other factors. You can decide what works best for you.
Tip: The debt-to-equity ratio can give an overall idea of your company’s financial health. It indicates financial stability and the ability to raise capital for growth. You can discuss it with your accounting team.
5. Open a merchant account
A merchant account is a part of setting up your MLM company’s operations. The merchant account enables your business to accept credit and debit card payments in person and online. You can also consider it a bridge between your customers’ bank accounts and your business account.
Clarify the following things before you apply for a merchant account:
- Who will sign on to the account? A merchant account is similar to a short-term line of credit. So the signer on the merchant account should have good personal credit.
- Have you launched your marketing website? Your website can provide potential payment processors with more details of your business and product offerings. It will influence their decision to partner with you positively.
- Is the setup fee refundable? Most payment processors company charge an application fee. Some fees are non-refundable, even if the account declined. Ask such questions upfront.
- Do you have enough lead time? You can expect the approval time for a merchant account to be longer due to the unpredictable growth patterns and legal liabilities associated with an MLM business model. Start the process early so that you have enough time before the launch.
6. Invest in the best MLM business software
MLM software is the engine that runs all facets of your business. It handles your compensation plan and automates API access, electronic transactions, party plan solutions, promotions, so you can get more followers and leads, and much more.
You want software that can scale up or down depending on your present and future needs. Many options are available in the market, and take the time to research different solutions. Identify companies with published case studies and positive public reviews.
You may start your hunt for the best MLM tools with SoftwareSuggest. Besides, you can schedule a free demo by contacting the vendors directly from online review portals.
7. Hire and retain an MLM attorney
It always helps if you can take care of all legalities without worrying about them. An experienced attorney can support you in the various stages of building an MLM business. Attorneys can guide you, including product regulatory compliance, labeling, compensation structure, and international expansion.
Let us look at one example where attorneys can play a significant role. When you start an MLM business, the company is responsible for the claims representatives make about products and earnings. In the US, the FTC (Federal Trade Commission) monitors and regulates such claims and looks for false or misleading claims about income potential or the associated benefits of products. So an MLM attorney can help you comply with all current regulations and carry out the business smoothly.
8. Document everything in your MLM business
Some businesses overlook the documentation part, but it costs them dearly in the long term. Business documentation includes policies and procedures, return policies, shipping policies, privacy policies, and sales material. Also, it establishes standard operating procedures for your field representatives.
The policy and procedure manual is a crucial document in an MLM company. It covers a comprehensive range of topics such as your business model, principles, and ethics.
Here are a few key points to consider when creating business documents:
- Product regulations protect sales and marketing materials, whether they are in a physical or digital format. Always abide by all the rules.
- Protect customer data at all times because most countries have strict privacy laws. Some of them also require you to disclose how you collect, share, and protect data captured when doing business.
- The federal law also regulates and limits how you use customer data for doing business. Align your documentation and business practices with your information technology to provide high levels of protection.
You may refer to another company’s documents but do not copy them. Create documentation that is specific to your business. You can consult your MLM attorney to draft such documents or provide a template.
9. Get ready for the pre-launch
A pre-launch is also known as a soft launch. It is about releasing your product or service to a small audience. It allows you to gain insights and make tweaks before launching to the general public.
The pre-launch can also strengthen your positioning while creating a buzz through sneak previews and irresistible offers. So make the best of it.
Your pre-launch should ideally be 90 days ahead of your main launch. You can make it worthwhile by creating interaction opportunities for your target audience. It will also serve the purpose of building awareness, and you may end up getting some pre-orders.
10. Prepare for the final launch of your MLM business
The big day has arrived, finally! Review your launch goals set in the business plan. These goals are the KPIs that will gauge the success of your launch. Supplement the data points with insights gained from your distributors and customers. It will validate your assumptions and help you adjust quickly to business needs in the long term.
When you know almost everything is set, go ahead and execute the launch. Some things may not work out as expected but do not lose heart.
What next?
You can continue to scale your newly-launched MLM business. Make proper use of all the available resources and always pay attention to changing customer needs. Treat all distributors with respect and avoid delaying compensation payouts. Last but not least, never assume you have learned everything about how to start a multi-level marketing business. The learning never stops!
Leave a comment below if you liked the article and share it with your peers.
A Backpacker with keen interest in Digital marketing. Responsible and passionate for building a digital culture at SoftwareSuggest. Grabber to implement new competitive ideas to analyze and boost online presence. Could be found in mountains and solo traveler by birth.
