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The following article was published in our article directory on June 6, 2014.
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Understanding How MLM Business Model Works

Article Category: Advice

Author Name: Elmer Sabisch

Network marketing have gained its popularity because more people wanted to become entrepreneurs so that they can take control of their own finances and futures. Despite several benefits of being a network marketer, one should also be cautious in choosing the right type of company before investing in this business.

There are so many misconceptions about multilevel marketing. Most people immediately associates these terms with "pyramid scheme" or "scam" without having an extensive understanding of the industry first. However, this is not always true. One can be able to distinguish pyramid scheme from a good multilevel marketing if they know what to look for and what to avoid in this industry.

Definition of terms is important before making judgment if a business is legal or not. A pyramid scheme is defined as "a non-sustainable business that involves the exchange of money, usually in the form of a sign-up fee, and usually has no product or service." Pyramid scheme is illegal because the only way people make money from this is by signing up new members for a fee that may eventually can collapse once the scheme reaches a certain level.

Based on US Securities and Exchange Commissions, some of the identifying characteristics of a pyramid scheme are the following: (1) vague descriptions of the company profile, (2) no products or services are being offered,(3) the only possible way to generate income is through sign- up fee from new recruits and (4) frequent assurance that the company is legal.

On the other hand, multi-level marketing companies can theoretically make income through the company's products and/or services alone even without recruiting new members. Also, a multi- level company enable people earn more income than their uplines or people who first signed up than them. Most of the confusions rise in this industry because MLM business model follows a similar concept to a pyramid scheme. However, MLM is completely legal, one should only need to identify its difference from illegal pyramiding.

Now that you can already identify legal MLM Company from a scam, it's also helpful to know the types of network marketing systems and its pros and cons.

There are four types of MLM systems. The oldest of them is the Unilevel Structure. In this system, there's no limit in the number of people you can recruit in your frontline, hence there's a higher chance of expanding. The downside of this system is that earnings are relatively low because you only earn from the people who directly signed up under you.

Stair step breakaway plan. This compensation plan is perfect for aggressive network marketers who have enough time to do the business and are good at sales. Characteristically, sales representatives are responsible for both personal and group sales volumes. Volumes are generated by recruiting and selling product. This system allows people to break away from their upline, which means people above you can no longer earn from you.

Another type of network marketing plan is the binary system which is also known as as the "left and right" system. It allows you to have only two people in your downlines and if you want to recruit more people, they have to be placed under your downlines. In this system, people get commission by completing both left and right sides of their downlines. It's the best compensation plan because it allows a network marketer build a team which will help him/her earn passive income and it also allows anyone earn more than the person above him/her.

Last but not the least is the forced matrix plan which essentially works as unilevel plan except that it put emphasis with its limited width. For example a 3 x 5 plan allows a person to only sponsor a maximum of 3 frontline distributors and she/he has the potential to earn commissions up to 5 levels deep. Since you can only recruit limited number of people, you have to closely help your downline in growing their networks. The advantage of this system is that it creates a sense of team work where some distributors within your organisation can work collectively and mutually generate income.

Keywords: MLM Leads,Network Marketing, MLM Tips,Steps too Success etc.

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