What is MLM (Multi Level Marketing)? Understand the meaning, types, how it works and risks

Multi-level marketing (MLM) or multi-level marketing is a business model that has been around for a long time and is often a topic of debate. In this article, we will understand what MLM actually is, its types, how it works, and its risks and potential.

What is MLM Business?

MLM or multi-level marketing is a business model where companies not only rely on selling products or services, but also utilize a network of independent distributors to promote and sell these products.

In this business, distributors are not only responsible for selling products to end consumers, but also for recruiting other people into the business, forming an increasingly large network.

They earn commissions from sales made by members they recruit, as well as from sales made by members recruited by their members.

This basic concept creates a tiered structure that resembles a pyramid. Apart from sales, recruiting new members is an important focus in MLM, which differentiates it from other business models.

High earning potential and time flexibility are the main attractions of this business, but there is also a significant risk of failure, and it is important to do in-depth research before getting involved in the MLM business.

Types of Multi Level Marketing

According to Setiawan (2017), there are various types of multi-level marketing (MLM) systems. The following are the various types of MLM that are most often used in various parts of the world.

Binary Plan System

The binary plan system is a form of MLM that emphasizes network development on two legs or two lines. The size of the bonus received depends on the balance of this network. If it is not balanced, bonuses can flow back to the company.

Many companies in Indonesia apply this MLM model, where development is fairly fast, and partners can get significant bonuses.

To make it easier to get bonuses, partners often adopt other partners' recruiting rules that lead to giving money as bonuses, which essentially resembles a more refined recruiting system.

Matrix System

MLM with a matrix system limits network development to only three frontlines . This type of MLM emerged to overcome the negative view of the binary plan system which was considered a money game.

Break Away System

In break away type MLM , network development places more emphasis on diversity. Partner bonuses will get bigger as the number of frontlines increases . However, this system requires agents to manage everything themselves. This system also allows downlines to surpass their uplines.

The initial bonus received by partners is generally small, but can continue to increase as they reach higher ranks. Companies that adopt this MLM model often offer recruiting bonus incentives because the initial bonuses are relatively small.

How MLM Works and Systems

In general, there are several stages and ways of working that need to be understood in the MLM system. Here's the full review!

Registration

The initial process in MLM is registration. Someone who wants to become an MLM distributor usually has to register with a specific MLM company. This registration may involve purchasing an initial product package or paying a registration fee. After registering, a person will become a part of the MLM network.

Product sale

MLM distributors have the responsibility to sell products or services to end consumers. They earn a commission from these sales. Success in product sales is very important in running an MLM business.

Recruitment

Apart from selling products, distributors are also expected to recruit other people into the MLM business. They will earn a commission from sales made by the members they recruit. This creates the tiered structure that is characteristic of MLM.

Building a Network

Building a large network is the main goal in MLM. The more members who are successfully recruited and the more active their network is in selling products, the greater the distributor's income potential. Distributors at the top levels of this network structure tend to earn larger commissions because of the network they have built.

Each MLM company can have a variety of different compensation systems, including commission rates, recruiting bonuses, and other incentives. It is important to understand the compensation system implemented by a particular MLM company before joining.

Characteristics of a Good MLM Business

A good MLM business has the following characteristics:

Quality Products: The products or services offered by a good MLM business are of good quality and provide real benefits to consumers. This product must have clear added value.
Transparency: A good MLM business provides clear and transparent information to distributors and potential distributors regarding the compensation system, requirements and income potential. They don't hide information or make unrealistic claims.
Training and Support: A good MLM company provides effective training and support to distributors. They help distributors to develop the sales, leadership, and time management skills necessary for success.
Legal Compliance: A good MLM business operates in accordance with applicable laws and regulations. They have the necessary licenses and adhere to business ethical standards.
Concern for Customers and Distributors: Good MLM companies care about customer satisfaction and the well-being of their distributors. They not only focus on recruiting, but also provide good customer service.

Characteristics of a Bad/Fake MLM Business

On the other hand, MLM businesses that are not good or considered fraudulent have the following characteristics:

Focus on Recruitment: These businesses focus more on recruiting new members than on actual sales of products or services. This often creates a structure similar to a pyramid scheme.
Problematic Products: The products or services offered may have quality problems, be priced too high, or have exaggerated benefits.
Difficulty Taking Money: Distributors have difficulty taking the money or commissions they should receive. Complicated payment processes or non-transparent actions often occur.
Unrealistic Claims: Unsavory MLM businesses often make unrealistic claims about the earning potential or benefits of their products. They may promise wealth in a short time without significant effort.
Not Having a License or Permit: A bad MLM business may not have the necessary licenses or permits to operate legally. This is a serious warning sign.

Is MLM allowed in Indonesia?

Questions regarding the legitimacy of MLM in Indonesia are something that often arises. The answer is, yes , MLM business is allowed in Indonesia, as long as it complies with applicable regulations and laws. However, it is important to understand that the Indonesian government has strictly regulated MLM businesses.

In regulations in Indonesia, MLM must meet a number of requirements, including:

Have an Official Permit: MLM companies must obtain official permission from the government, such as the Ministry of Trade, before they can operate legally.
Clear System: MLM companies must have a clear system, including compensation and network structure, that does not harm its members.
Not Becoming a Pyramid Scheme: MLM companies must conduct their business without becoming an illegal pyramid scheme. An illegal pyramid scheme is a business where profits primarily come from recruiting new members, rather than from selling products or services.
Transparency: MLM companies must be transparent in providing information to distributors and prospective distributors about the requirements, compensation and business opportunities offered.
Code of Ethics: MLM companies are also expected to follow applicable codes of business ethics, including not using detrimental or misleading sales or recruiting tactics.

The Indonesian government has enacted Law Number 8 of 1999 concerning Consumer Protection , which also includes provisions for MLM businesses. Therefore, someone who wants to get involved in MLM business in Indonesia must be very careful in choosing a legitimate company and ensure that the company complies with all applicable regulations.

Advantages of Multi Level Marketing Business

Multi-level marketing (MLM) businesses have several advantages that are attractive to individuals looking for alternative business opportunities:

High Earning Potential: One of the main attractions of MLM is the high earning potential. By building a large and active network, distributors can generate significant income.
Time Flexibility: MLM business provides flexibility in managing work schedules. Distributors can work according to the hours they choose, making it suitable for individuals with busy schedules.
Personal Development Opportunities: MLM is not just about selling products, it also involves training in marketing, leadership, and interpersonal skills. This can help individuals develop themselves and improve their abilities.
Own Business Owner: An MLM distributor functions as the owner of their own business. They have control over their efforts and the success of their business.
Socializing Opportunities: MLM businesses provide opportunities to socialize and build relationships with various people. This can be a satisfying social aspect.

Risks and Disadvantages of Multi Level Marketing Business

However, like any other business, MLM also has risks and drawbacks that need to be considered carefully:

Difficulty of Success: Statistics show that most MLM distributors do not achieve a high level of success. Success in this business is not guaranteed and requires hard work.
Focus on Recruitment: Some MLM businesses tend to focus more on recruiting new members than on actual sales of products or services. This can create intense pressure to recruit.
Potential Loss of Money: Starting an MLM business requires a significant initial investment, including the purchase of product packages or registration fees. There is a risk of losing money if the business does not grow.
Negative Image: MLM often has a negative image due to some unethical companies and illegal pyramid schemes. This can influence people's perception of the MLM business as a whole.
Difficulty in Building a Network: Building a large and active network in MLM can be a challenging task and take a long time.

When considering an MLM business, it is important to conduct in-depth research, understand the requirements, and have realistic expectations. The decision to get involved in this business must be carefully considered and in accordance with individual goals and abilities.

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